1980 PLP 255 (PTD)

(iv) Any person, who has never filed his return of income or has never been assessed to tax so far, may also file a return of income or a consolidated statement by the 31st December, 1958 showing his true income for any year or years as the case may be, and no action of any kind whatsoever shall be taken against him for not having filed the return before. Paragraph 3 of the Regulation which laid down the manner in which the `excess income' represented by the difference between the revised return and the origins return had to be compounded read as under:- "Paragraph 3.‑(i) The `excess income' shall not be treated as part of the total income of the same person but separately, as if it were the total income of another person ; and where it pertains to more years than one ; the aggregate of excess income of all such years be treated as the `excess income'. (ii) In all cases in which the total amount of tax due under the Income tax Act, 1922, and the Business Profits Tax Act, 1947 on the `excess income' is more than 31 per cent. of it, the aforesaid tax, shall be compounded as follows:- (a) If full payment is made contemporaneously with the filing of the revised return or statement, it shall be compounded at 31 percent of the amount of the `excess income' ; (b) If full payment is made within 30 days of the filing of the revised return or statement, it shall be compounded at 33 percent of the excess income' ; and (c) In all other cases, it shall be compounded at 35 per cent of the `excess income': Provided that the compounded tax on `excess income' shall not exceed the total amount of the tax due on it at rates applicable to the assessment year 1958‑59. (iii) While calculating the amount of tax due under the Income‑tax Act, 1922 on the `excess income', no allowance shall be made for any rebate, deduction or exemption admissible under that Act."

6. The Martial Law Regulation 43 as amended by Martial Law Regulation 48 applies to all the years for which an assessee was required to file a return and had either filed a return which does not disclose the correct income or has omitted to file a return. The learned counsel for the petitioner has not been able to satisfy me that in introducing clause (iv) in paragraph 2 the intention of the law‑giver was to make the provisions of the regulation applicable to cases of those persons who claim not to have committed any default of payment of income‑tax. I have no doubt that persons who did not enjoy taxable income and as such were not required to file a voluntary return under the provisions of subsection (1) of section 22 of the Income‑tax Act, 1922 were wholly outside the purview of the Martial Law Regulation Nos. 43/48. No notice under section 22(2) had been issued by the Income tax Officer before the assessee filed the declaration on 30‑12‑1958. Admittedly no assessment had been completed earlier. The question that arises for consideration is whether the petitioner was entitled to file a return of loss under clause (iv) of paragraph 2 of Martial Law Regulation 43 as amended by Martial Law Regulation 48 for the assessment year 1958‑

59. The assessee firm admittedly carried on business during the cotton season 4956‑57 and would be obliged to file a return of its total income for the assessment year 1958‑59 voluntarily under the provisions of subsection (1) of section 22 of the Income‑tax Act, 1922 only if its income had exceeded the taxable minimum. The firm claims that it had incurred a net loss of Rs. 12,

371. It has to be remembered that the normal assessment for 1958‑59 could be completed under section 23 before 30‑6‑1959 and the income for is year could not be said to have `escaped assessment', on 30‑12‑1958 when the assessee firm filed the "declaration" under M. L. R. Nos. 43/48. The learned counsel for the petitioner is unable to show why the Income‑tax Officer could not have issued a notice under subsection (2) of section 22 in order Complete an assessment under the provisions of section 23 of the Income. Act, 1922, at any time before 30‑6‑1959. A notice under subsection (2) of section 22 had not been issued but there was no impediment for respondent No. 1 to have issued such a notice before 30‑6‑1959 and to complete an assessment.

7. Clause (iv) of paragraph 2 of the Martial Law Regulation 43 was added by Martial Law Regulation 48 with the object of enlarging the scope of clause (i) of paragraph 2 which was restricted to the assessment year 1954‑55 or any assessment year thereafter" in respect of which default had been earlier committed. There is, however, little doubt that like clause (i) the newly‑added clause (iv) also aimed at providing all persons who had committed infraction of law for any year an opportunity to come out with a declaration of their true income and pay the tax at rates specified in paragraph 3 of the Regulation and have their liabilities and offences compounded. I am unable to agree with the learned counsel that even a person who has no taxable income to declare and whose only case is that he had concealed or rather failed to pay sales tax leviable under section 3 of the Sales Tax Act, could by his act of filing a declaration of loss deprive the Income‑tax Officer of his jurisdiction to assess the income for 1958‑59 ever within the compass of that year. I am of the view that the provisions of M. L. R. Nos. 43148 enable the state to compound cases of evasion of tax at the specially reduced rates prescribed by paragraph 3 of the Regulation and had no application to cases like the present which did not involve evasion of tax on income. To my B mind a declaration of loss which did not disclose any taxable income and consequently did not involve composition of offences or evaded tax liability, was clearly outside the purview of the Martial Law Regulation 43. 1 do no consider it necessary to deal here with a case of revision/reduction of an assessed loss which could possibly effect the tax liability in any future year:

8. This brings me W. P. No. 2063 of 1964 where the question for consideration is whether it was at all open to the assessee firm to claim immunity from sales tax liability un the plea that he had earlier successfully evaded payment of sales tax.

9. Paragraph 3 of the Martial Law Regulations Nos. 43/48 contemplated composition of evaded income‑tax and Business Profits Tax only. However, on 20‑12‑1958 the Central Board of Revenue issued a circular which had the effect of enlarging the scope of composition of tax, liability contemplated by Martial Law Regulation No. 43 to cover tether taxes and duties including the customs duty, estate duty and the sales tax. The relevant provision of paragraph 2 of the Circular reads as under:- "Where a tax‑payer has filed a revised return or consolidated statement showing his excess income correctly, it would be taken to represent all the income earned by him from all sources including suppression, if any, of taxes evaded or collected from customers but not paid to Government. Thus sales tax assessment or proceedings for the recovery of excise or custom duty, etc., would not be started or re opened, as the case may be, against such persons for the relevant period except that the re‑valuation proceedings already pending with the Valuation Branch of the Customs Department would not be affected. Similarly, assessments under the Estate Duty Act which have already been finalised would not be re‑opened and any statement made under Martial Law Regulation No. 43, as amended, would not be utilised in completing pending estate duty assessments. This is, of course, on the assumption that all income and gains from such suppression or non‑payment of taxes, etc., are now included in the revised return or consolidated statement of the tax‑payer concerned." A perusal of the above provision would show that the right to claim immunity from sales tax liability dependend upon the declaration of correct `excess income' which means "the income represented by the difference between the revised return and the original return." The expression is so explained in paragraph 2(1) of the Martial Law Regulation No.

43. It follows that in order to earn immunity from sales tax liability the petitioner had to qualify two conditions‑ (i) that he has filed a return declaring his true income ; and (ii) that the declaration of correct `excess income' has been for the purposes of composition of tax liability. It may be remembered that it is the composition of taxes on income which earns an incidental immunity from the liability to taxes like sales tax custom duty estate duty, etc., evaded by an assessee. In this case the petitioner had not filed a return earlier and there was no question of his filing revised return or consolidated statement of income showing his `excel income' within the meaning of paragraph 2 of the Central Board of Recent, circular dated 20‑12‑1958 read with paragraph 2(i) of M. L. R. No. 43/4: which means the income represented by the difference between the revised return filed under Martial Law Regulation 43 and the income as per return originally filed. There being no declaration of `excess income' the assessee firm was not entitled to claim, any immunity from sales tax liability under the Central; Board of Revenue circular dated 20‑12‑1958. In this case the declaration under M. L. R. No. 43/48 having been held incompetent fl, question of grant of any incidental exemption simply does not arise. There is yet another reason why the assessee firm could not claim the benefit of this circular. The assessee firm claims that the total sales of cotton and cottonseeds amounted to Rs. 3,80,542 out of which sales o Rs. 2,72,813 were exempt from sales tax liability on the ground that such sales had been made to Textile Mills and Oil Mills, leaving a balance Rs. 1,07,725 on which the firm worked out the sales tax liability at Rs. 3,25' but claimed that since it had successfully concealed the sales tax its' action of submission of the return for the assessment years 1958‑59 declaring a net loss of Rs. 12,370 under Martial Law Regulation 43 would absolve it from the discharge of proper sales tax liability also. The claim to exemption of the sales of Rs. 2,72,813 made to the Textile & Crushing Mills appears to be misconceived. Such a claim would be admissible only if sale were made by one licensed manufacturer to another licensed manufacturer or licensed wholesaler within the meaning of section 8 of the Sale; Tax Act as in force in the relevant year. The assessee had admitted not taken out a licence under section 8 of the Sales Tax Act, 1951, and any sales of manufactured goods made by it to another licensed manufacturer would not, for that reason, qualify it for exemption under section 4 of the Sales Tax Act, 1951. The result is that the claim to exemption in respect of the aforesaid amount, of Rs. 2,72,813 is wholly untenable. According to the petitioner the firm only concealed tax of Rs. 3,255 which it included in the declared loss of Rs. 12,

370. This wrong claim to exemption of sales tax allegedly concealed as a part of income would render the declaration itself as incorrect and would in turn operate to deprive it of the benefit of circular dated 20‑12‑1958 even if the assessee were otherwise entitled to exemption. Declaration of correct income, it may be remembered, is a condition precedent to the grant of immunity from sales tax.

10. In the result I have no hesitation in holding that the assessee in this case is not entitled to the benefits of the provisions of M. L. R. No. 43/4 in regard to income‑tax liability or the benefits of paragraph 2 of circular dated 20‑12‑1958 in regard to the liability to sales tax.

11. There is no merit in these writ petitions which are accordingly dismissed with costs. Petition dismissed.