P L D 1961 Supreme Court 375 (PLP)

HAMOODUR RAHMAN, J.-This is a certificated appeal, from a reference to the High Court of East Pakistan, under section 19 of the Business Profits Tax Act, 1947, read with section 66 (2) of the Income-tax Act, 1922. This reference was made by the Income-tax Appellate Tribunal, Dacca Bench, .at the instance of the Commissioner of Income-tax, East Pakistan, for obtaining the opinion of the High Court on the following question of law :- "Whether under the Business Profits Tax Act of 1947 initi ation of proceedings of assessment on 16th January 1952 in the facts of the present case could be considered valid in law for assessing the Business Profits Tax for the chargeable account ing periods commencing on 1st April 1946 and ending on 14th July 1946 and commencing on. 15th July 1946 and ending on 13th July 1947?" The reference came to be made in 'the following circums tances:- The Business Profits Tax Officer for the first time on the 16th of January 1952 served notices on the respondent firth under section 11 of the Business Profits Tax Act calling upon it to furnish returns of the profits of its business for the account ing periods 1-4-46 to 14-7-46 and 15-7-46 to 14-7-47. There after he proceeded, to assess this firm under section 12 (1) of the said Act to the extent of Rs. 18,460 for the first accounting period and to Rs. 63,038 for the next accounting period. These assessments were completed on the 30th of January, 1952. On appeal to the Appellate Assistant Commissioner, however, the assessments were set aside on the 26th January, 1953 on the ground that no prior approval for the assessments had been taken from the Inspecting Assistant Commissioner for the aggregation of profits, and the Taxing Officer was directed to reassess the same, the re-assessments were completed on the 31st of May 1955, and were this time confirmed on appeal on the 8th of February 1958. But on a further appeal to the Income-tax Appellate Tribunal the assessments were again set aside on the ground that the assessments having been initiated after the period of limitation contained in section 14 of the said Act were illegal and therefore void. The High Court also on the reference upheld the view taken by the Appellate Tribunal and answered the question submitted to it in the negative. The view taken both by the Appellate Tribunal and the High Court was to the effect that the statute had to be read as a whole and reading all the sections of the statute together the intention of the Legislature that could be gathered there from was to pres cribe a period of limitation for assessing business profits by section 14 of the Act which was held to control the provisions of section 11 thereof. In coming to this conclusion the High Court adopted the reasoning of Chagla C. J. of the Bombay High Court in the case of Commissioner of Income-tax, Bombay City 1, Bombay v. Messrs Narsee Nagsee & Company, Bambay (A I R 1957 Bom. 1). It is now contended on behalf of the Commissioner of Income-tax that this conclusion is wrong, as section 14 of the Act deals with an entirely different matter, namely, the recovery of tax which has escaped assessment, whilst section 11 is an independent section dealing with the initiation of assessment. It is said that a tax escapes assessment only in a case where no assessment has been made after initiation of proceedings. In a case, however, where no assessment has at all been initiated, there can be no question at all of any profits chargeable to the tax escaping assessment. Thus, since section 11 does not prescribe any period of limitation, the High Court was in error in reading into it something which was not there. In support of this contention reliance is sought to be placed on an observation contained in the opinion of the Judicial Com mittee in the case of Sir Rajendra Nath Mukerji and another v. Commissioner of Income-tax (61 I A 10). The observation relied upon is at page 15 and is to the following effect :- "This involves reading the expression `has escaped assessment' as equivalent to `has not been assessed'." It is argued that as their Lordships did not assent to this reading the expression `has escaped assessment' cannot be equivalent to `has not been assessed'. The case before their Lordships of the Judicial Committee was one in which the income-tax after assessment was declared to be illegally assessed and the question for consideration was whether a case where an income returned for assessment has been once accepted as correctly returned, though erroneously included in the assessment of another assessee, who had in the meantime acquired the business of the first assessee, was a case of an income escaping assessment in the relevant assessment year it appears that one of the said assessee was a registered firm and the other an registered firm but the incomes of both were aggregated and taxed. This was held by the High Court to be illegal. The taxing authorities then made separate assessments on the basis of the returns already filed. The assessee contended that this could only be done under section 34 by treating the case as one of escaped assessment. It was held, however, that in the circumstances of that case it could not be said that the income of the assessee had escaped assessment Incidentally whilst dealing with the meaning to be given to the words escaped assessment' in section 34 their Lordships also observed that "it may be that if no notice calling for a return under section 22 is issued within the tax year, then section 34 provides the only means available to the Crown of remedying the omission." The above observation completely negatives the contention now advanced before us, for the case before us is one in which no return was called for until after the expiry of four years from the end of the chargeable accounting period in question. Reliance has also been placed by the learned counsel for the Commissioner on the dissenting judgment of Hidayatullah J. in the appeal to the Supreme Court of India from the decision of the Bombay High Court in the case of Messrs Narsee Nagsee and Co. (A I R 1960 S C 1232). The majority opinion in this case which was directly concerned with the interpretation to be put upon sections 11 and 14 of the Business Profits Tax Act, 1947, is against the contention of the learned counsel and affirms the decision of the Bombay High Court. Hidayatullah J., however, took the view that section 11 effectuates the assessment, levy and collection of tax from persons believed to be liable, while section 14 enables a reopening of cases where after an assessment there is discovery that profits have escaped assessment due to one reason or another. The use of the words escaped assessment' in the context of the Act has reference only to those cases where profits of a business were brought to process once but for some reason some profits escaped assessment or were under-assessed or received excessive relief." This approach of Hidayatullah J. appears to have been based mainly upon two considerations. The first was that section 11 was an independent section providing for a different set of circumstances and, therefore, its intention had to be gathered from its words alone. There was no necessity to reconcile it with section

14. The second was that the reconciliation of the two sections could only be made by importing into this Act the notion of an assessment year" or "assessment period" from the Income-tax Act, although such a notion did not fit into the scheme of the Business Profits Tax Act. If we may say, so with respect, we find ourselves unable to agree that the intention of the Legislature is to be gathered from the words only of a parti cular section falling to be interpreted. We would have thought that tine conventional method of ascertaining the intention of the Legislature after reading the statute as a whole was more likely to lead to the discovery of its true intent and is always a safer rule to follow. It is significant that the learned Judge was conscious of the fact that by following the rule of harmonious construction, adopted by the High Court and the majority of his colleagues constituting the Bench, an "equally plausible" alter native view could be equally well called from the scheme of the Business Profits Tax Act. The argument, however, that where two equally reasonable constructions were possible; one strict and the other beneficial to the assessee ; then in a taxing statute the latter should be preferred, did not find favour with him. We are also unable to agree that the notion of an "assessment period" is entirely foreign to the scheme of the Business Profits Tax Act simply because no time limit for the issuance of the notice under section 11 has been specified therein, as in subsection (1) of section 22 of the Income-tax Act. If this argument is valid, then in a case where assessment is initiated under subsection (2) of section 22 of the Income-tax Act, there should also be no "assessment year" or "assessment period", for there too no time limit is given. Merely because with regard to an income which is taxable, there exists an obligation to file a return after the general notice mentioned in subsection (1) of section 22. it is said, that the notice, under subsection (2) of that section must be, issued before the close of the assess ment year. But under section 11 of the Business Profits Tax Act too the return has necessarily to be in respect of profits made during, a chargeable accounting period and, therefore the notice calling for such a return should ordinarily be issued within a reasonable period after the termination thereof and the reasonable period, we would say, should not extend beyond the period specified in section 14 thereof. Be that as it may, we for ourselves would prefer to follow the conventional path and endeavour upon a construction of the entire provisions of the Business Profits Tax Act to ascertain what the Legislature intended, particularly, since the Legis lature has itself said that the liability to the payment of' the tax is to be "subject to the provisions of the Act." Looking at the statute as a whole it will be seen that subsection (2) of section 2 defiles the "accounting period" and subsection (4) of the said section defines the chargeable accounting period and subsection (17) defines taxable profits as the amount by which profits of a business during a "chargeable accounting period" exceed the abatement in respect of that period. The chargeable accounting period itself under clause (a) of subsection (4) is a definite period beginning on the first day of April 1946 and ending, on the last day of a specified month in a specified year as prescribed by successive amendments affected by the Finance Acts of successive years. Section 4 is the charging section which provides that subject to the provisions of this Act" there shall be charged and levied a tax on the taxable profits during any "chargeable accounting period." Section 5 specifies the business to which the Act applies. Thorn sections 11 and 12 lay down the procedure of assess ment and section 13 gives the power of making provisional assess ment and section 14 provides for taxing profits which may have escaped assessment or have been under-assessed or been the subject of excessive relief. Then section 19 makes certain provisions of the Income-tax Act as applied to excess profits tax under the Excess Profits Tax Act applicable to business profits tax also in the same manner and in so far as they are not repug nant to the provisions of the latter Act. The rest of the provisions are not relevant for our present purposes. This scheme is not, in our opinion, altogether dis-similar to the scheme of the corresponding provisions of the Income-tax Act applicable to a case where an assessment is initiated under subsection (2) of section 22 of that Act. It has an "accounting period" as also an "assessment period" which is reasonably' inferable from these provisions. Subsection (1) of section 11 of the Act reads as follows :- "(1) The Income-tax Officer may, for the purposes of this Act, require any person whom he believes to be engaged in any business to which this Act applies, or to have been so engaged during any chargeable accounting period or to be otherwise liable to pay business' profits tax to furnish within such, period, not being less than forty-five days. from the date of the service of the notice, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth (along with such other particulars as may be provided for in the notice) with respect to any chargeable accounting period specified in the notice the profits and taxable profits of the business or the amount of deficiency, if any, available for relief under section 6 Provided that Income-tax Officer may in his discretion, extend the date for the delivery of the return. It will be seen that under this section the first step is to call for a return in the prescribed form, verified in the prescribed manner and setting forth the profits and taxable profits of the business of the assessee or the amount' of the deficiency, if any, available for relief under the Act. It is true that this section fixes no time limit for the issuance of the notice but the profits and taxable profits, of which returns are called for, are to be with respect to a particular chargeable accounting period specified in the notice. No liability to pay the' tax is created by this section, for, as already stated, the charging section is section 4 and the tax is to be levied under that section but subject to the provisions of the Act. It may be that whilst laying down the procedure it was not considered necessary by the legislature to prescribe any limitation. Apart from this, it may equally well be that the legislature did not feel the necessity of fixing any period during which the assessment could be initiated in view of the fact that by a subsequent section, namely, section 14, it was proposing to fix a time limit within which profits, which have escaped assessment, may be made liable to the' tax. This section is as follows: "If, for any reason profits of any chargeable accounting period chargeable to business profits tax have escaped assessment, or have been under-assessed, or have been the subject of excessive relief, the Income-tax Officer may at any time within four years of the end of the chargeable accounting period in question serve on the person liable to such tax a notice containing all or any of the requirements which maybe included in a notice under section 11, and may proceed to assess or reassess the amount of such profits liable to business profits tax, and the provisions of this Act shall, so far as may be, apply as if the notice were a notice issued under that section: Provided that unless definite .information has come into his possession the Income-Tax Officer shall not initiate proceedings under this section without obtaining the previous approval of the Inspecting Assistant Commissioner of Income tax." Apart from the specific meaning to be given to the words "escaped assessment" in this section, it seems to us that the section is worded in very wide term. For instance it is said that if for any reason whatsoever such escapement has taken place or the tax has been under-assessed or excessive relief give then within four years of the end of the chargeable accounting period in question the taxing authorities may, after serving upon the assessee concerned the notice provided for under section 11. proceed to assess or reassess the amount of the tax, and further more that the provisions of the Act shall apply in such a case as if the notice issued were a notice under section

11. It seem to us that the provision for assessment or re-assessment, as the ease may be, clearly contemplates both the eventualities, namely, one in which no assessment has at all been initiated and the other where an assessment has been initiated but no tax assessed. Where a return has been already examined and assessed bur no tax is for some reason or other levied it must be reassessed. Hence the words "proceed to assess" must necessarily refer to a case where no occasion to assess has previously arisen. The reading of section 14, to our mind, negatives the con tention put forward on behalf of the Commissioner of the that the words `escaped assessment' can refer only to a case where assessment had in fact been initiated but for some reason or other no tax was levied, although the tax was leviable. Such a reading of the provisions of the Business Profits Tax Act appears to us not only to be reasonable but also the one which produces a consistency with the various provisions thereof. To hold otherwise would produce the anomalous result that whilst a dishonest assessee would be protected from harassment after the lapse of four years, an honest assessee would remain exposed to the harassment for even 10 or 50 years. It is difficult to impute such an iniquitous intention to the Legislature. Such a reading of section 14 also appears to be in consonance with the interpretation which the words "escaped assessment in section 34 of the Income-tax Act, 1922, have received hitherto- fore. These words have never been held to be restricted to only cases which have escaped assessment after the initiation of pro ceedings for assessment. For the reasons given above we have no hesitation in coming to the conclusion that the High Court of East Pakistan rightly answered the question put to it and that this appeal should be dismissed, but having regard to the fact that the question was not one which could be said to be free from difficulty we make no order as to costs. A. H. Appeal dismissed.