1963 PLP 124 (PTD)

S. 35(6) Business Profits Tax Act (XXI of 1947), Ss. 6, 10 Business profits Deficiency in later period Adjustment of taxable profits of earlier period Rectification of income tax assessment When limitation starts. Although a certain result is to follow to an earlier accounting period by virtue of section 6 of the Business Profits Tax Act, 1947, if a deficiency is found to have occurred in a later period, section 35 (6) of the Income tax Act, 1922, requires an order making or modifying the assessment of the business profits tax allowed as a deduction in the income tax assessment of the earlier period in order to start the running of the four year period of limitation for the rectification of the income tax assessment for the earlier period. Limitation does not start from the date of assessment for the later period but from the date of the order in which the deficiency of the later period is set off against the taxable profits of the earlier period. JUDGMENT DESAI, J. The short question which arises for determination in this application under Article 226 of the Constitution is whether the action taken by the Income tax Officer under section 35(6) of the Indian Income tax Act was within time. The petitioner was assessed to income tax and also to business profits tax for the year ending March 31, 1947. The taxable profits of the petitioner for the purpose of the Business Profits Tax Act, 1947, were assessed at Rs. 1,10,652 and business profits tax assessed thereon was Rs. 18,442. The second chargeable account period for the business profits tax was the period ending the 31st of March, 1949. The assessment order in respect of that period was made on January 27, 1956, and it was then found that there was a deficiency of Rs. 1,13,169 which, by virtue of the, provisions of section 6 of the Business Profits Tax Act, 1947, was deemed to have reduced the taxable profits of the previous chargeable accounting period ending March 31, 1947. In this assessment order, therefore, it was stated that the deficiency would be set off against the taxable profits of the first chargeable accounting period ending March 31, 1947. The order setting off the deficiency, however, was actually passed by the officer on February 18, 1960, and since the deficiency was larger than the taxable profits of business of the first chargeable accounting period the entire business profits tax of Rs. 18,442 was declared as refundable to the petitioner. The first respondent, the Income-tax Officer, thereafter, in view of section 10 of the Business Profits Tax Act, proceeded to rectify the income tax assessment for the assessment year 1949-50 under section 35(6) of the Indian Income tax Act. The petitioner opposed this action on the part of the Income tax Officer contending that it was barred by law inasmuch as the four years' period provided under section 35(6) commenced from January 26, 1956, and, therefore, the action proposed to be taken by the Income tax Officer, which was beyond the period of four years from the said date was barred by limitation. The petitioner's contention was not accepted by the Income tax Officer, who took the view that the four years' period commenced not from January 27, 1956, but from February 18, 1960, when the order was made setting off the deficiency against the taxable profits of the earlier year. He, therefore, by his order dated March 10, 1960, rectified the assessment order under section 35(6) and issued a notice of demand under section 29 of the Indian Income tax Act for Rs. 15,452.18 nP. from the petitioner. Being aggrieved by the said order, the petitioner filed a revision application under section 33-A of the Income tax Act to the second respondent, the Commissioner of Income tax, but the said application was rejected by the Commissioner on January 31, 1961. He has thereafter filed the present writ petition praying for an appropriate writ, direction or order quashing the aforesaid orders of the first and second respondents. In our opinion the contention urged by the petitioner that the action taken by the Income tax Officer under section 35(6) was barred by limitation is not tenable. Mr. Palkhivala, the learned counsel for the petitioner, has urged that under section 6 of the Business Profits Tax Act of 1947 as soon as a deficiency of profits is found to have occurred in any chargeable accounting period in any business, the taxable profits of the business shall be deemed to be reduced and relief has to be granted in the manner provided in the said section. In the present case, in view of the said provision, the deficiency having been found to have occurred on January 27, 1956, the aggregate amount of the taxable profits of the prior period ending with March 31, 1947, must be deemed to be reduced on that date by the amount of the deficiency and the business profits tax payable in respect thereof must also be deemed to be reduced accordingly and the relief consequent thereon became receivable by the assessee by repayment also on the said date. The further order dated February 18, 1960, setting off the deficiency and declaring the amount of Rs. 18,442 as refundable to the assessee was merely a ministerial order giving effect to the statutory relief under section 6 of the Business Profits Tax Act to which the assessee had been entitled on January 27, 1956. No doubt under section 10 of the Business Profits Tax Act and section 35(6) of the Indian Income tax Act, 1922, the first respondent was entitled to rectify the income tax assessment order for the assessment year 1949 50 but the four years' period during which he could do so commenced on January 27, 1956, when the deficiency of profits in the chargeable accounting period ending March 31, 1949, occurred and the statutory consequences under section 6 of the Business Profits Tax Act ensued. According to Mr. Palkhivala the present order under section 35(6) which has been passed by the first respondent on March 10, 1960, being beyond a period of four years from January 27, 1956, is unauthorised and contrary to law. Now, it may be that under section 6 of the Business Profits Tax Act, a certain result was bound to follow on the deficiency having been found to have occurred, but section 35(6) of the Indian Income tax Act required an order making or modifying the assessment of the business profits tax in order to start the running of the four years' period of limitation for the rectification of the assessment order under section 35 (6) of the Indian Income-tax Act. In the present case the said order was made by the officer only on February 18, 1960: The period of four years, therefore, to rectify the income tax assessment order was a period of four years commencing from February 18, 1960. The action taken by the Income tax Officer under section 35(6), therefore, was perfectly within time. The result, therefore; is that the, petition fails and is dismissed with costs. The rule is accordingly discharged. Petition dismissed.