P L D 1965 Supreme Court 467 (PLP)

CORNELIUS, C. J.‑This appeal comes before the Court on a certificate granted by the High Court, which is based purely on the point of valuation. The order under appeal was one by a Division Bench dismissing a petition for a writ filed by the appellant‑Company, Messrs Haji Khalil Ahmad Haji Abdul Aziz to call in question certain actions of the Income‑tax Department in respect of the assessment of the firm to income‑tax for the assessment years 1957‑58 and 1958‑

59. The object of the writ petition was to assert that the assessee had a right to protection under Martial Law Regulation No.

43. The facts are simple. This firm had never filed any return, although it had carried on cotton ginning business at Bahawalpur during the cotton seasons of 1955‑56 and 1956‑

57. The matter came before the Income‑tax Officer on an application for registration as a partnership, when the Income‑tax Officer issued a notice under section 34 of the Income‑tax Act requiring the assessee to furnish the statutory statement of its detailed income within 35 days of the receipt of the notice. Notice was served on the 3rd May 1958, and the statutory statement was accordingly due on the 8th June 1958: No return was furnished in time, and it appears that the Income‑tax Officer also did not follow up the matter, but after Martial Law Regulation No. 43 was promulgated on the 3rd November 1958, the assessee filed consolidated statement showing profit for the assessment year 1957‑58 at Rs. 33,063 followed by loss for the assessment year 1958‑59 at Rs. 48,541, and thus disclosing a net loss of Rs: 15,478 in relation to which it expected to be assessed in terms of the Martial Law Regulation. As originally promulgated, this Regulation made no provision for persons who had never previously filed a return of income or been assessed to tax, to which category the assessee in this case belonged, but by Martial Law Regulation No. 48 promulgated on the 17th November 1958, provision was made for such persons in the following words:‑ "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." The assessee filed his return above‑mentioned on the last available date, namely, the 31st December 1958, and demanded to be treated under the Martial Law Regulation. The Income‑tax Officer rejected the claim on the ground that "the benefit of Martial Law Regulation No. 43 is admissible only to the assessees who furnished their returns before 3rd November 1958, which were incorrect, or to the new assessee who had not furnished their returns at all'". The assessee was held to be excluded from this benefit because prior to the 3rd November 1958, a notice under section 34 had already been issued to it and had been duly served on the 3rd May 1958. Accordingly, the Income‑tax Officer proceeded to assess the assessee's income in accordance with the provisions of the Income‑tax Act. Notices were issued to the assessee to produce account books, and furnish explanations, and these not being complied with, an assessment was made on the basis of the return of bales of cotton ginned and pressed during the cotton season 1955‑56 for which the assessment year was 1957‑

58. Tax was apparently assessed at Rs.13,500 and was duly recovered. In the writ petition, it was averred that this recovery was illegal and without jurisdiction because of the refusal of the authorities "to deal with the case under Martial Law Regulation No. 43/48 under which the petitioner‑firm was entitled to several benefits one of which is that in view of loss no assessment could have been made and no penal action could have been taken." It was stated also that in the capacity of Sales Tax Officer, the Income‑tax Officer had initiated proceedings for the assessment of sales tax as well, and was "bent upon burdening the petitioner with Sales Tax as well contrary to Martial Law Regulation No. 43 as amended by Regulation No. 48". One relief sought was that assessment of income‑tax for the year 1957‑53 could not be made, but that under the provisions of Martial Law Regulation No. 43/48 "assessment should have been made on tile consolidated statement for both the years 1957‑58 and 1958‑59", it being urged that the Martial Law Regulation superseded all existing laws to the contrary. A further relief was sought in the shape of prohibition against the sales tax assessments which were in the process of being made. In the High Court, a Division Bench dismissed the writ in limine mainly on the basis of a statement in a circular issued by the Central Board of Revenue on the 18th November 1958 to the effect that the expression "any person who has never filed his return of income" in paragraph 2 (iv) of the Regulation should be understood not to include a person from whom a return had already been asked for by the Department. It was pointed out that if the contrary view were taken, then every assessee who had filed his return between the 3rd of November and the 31st of December in the ordinary course would have been entitled to the concession conferred by the Regulation, which was intended obviously for encouraging persons who had previously concealed their income to submit voluntary returns. Having heard Mr. Ijaz Hussain Batalvi in support of the appeal, we consider that the dismissal of the writ petition can be supported on other grounds as well. If the assessee be placed in the class of persons who had never previously filed a return of income or been assessed to tax the facility provided to it by the Martial Law Regulation was specifically that of furnishing "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 the immunity provided was confined to' protection against any action under law for having not filed the, return earlier, that is to say in due time. The terms of paragraph 2 (iv) do not admit of any larger immunity being conferred so that it would seem to be clear that any return furnished under this sub‑paragraph would be liable to be dealt with in the ordinary course under the Income‑tax Act, that is to say, it would be subject to verification as provided by that Act. There is nothing in the sub‑paragraph to give the impression that whatever return was made would ordinarily be accepted as true. For the claim to be assessed on the consolidated statement, Mr. Ijaz Hussain Batalvi appeared to rely upon the three earlier sub‑paragraphs in paragraph 2 of the Regulation. The purport of these sub‑paragraphs may be paraphrased as below. A person who had filed a return of income for the assessment year 1954‑55 or any subsequent assessment year, and who believed that the return so filed was not correct, was enabled to file a revised return of his true income by the 31st December whereupon he would enjoy the following immunities: (i) no action under law would be taken against him for having filed an incorrect return originally; (ii) no action would be taken in respect of "the nature of the transaction from which the income represented by the difference between the revised return and the original return, hereinafter called the excess income' was derived"; and (iii) the fact of his having filed a revised return would not be used as a ground for re‑opening any earlier assessment under section 34 (2) of the Income‑tax Act. Where such an assessee did not find it possible to file a revised return separately for each year, he was enabled to put in a consolidated revised return showing his income for the entire period commencing with the assessment year 1954‑55, but he should do so before the 31st December 1958. By a later amendment, such an assessee was enabled to file such a return for any year or years prior to the assessment year 1954‑

55. Paragraph 3 of the Regulation provided for imposition of tax on "excess income". This paragraph provided that the "excess income" should not be treated as part of the total income previously disclosed, but should be treated as if it were "the total income of another person" and upon such "excess income" and tax should be levied at 33 % or in certain specified cases at 31 % on the gross "excess income" disclosed. It seems plain enough that in order to gain the benefit of these provisions in the Martial Law Regulation an assessee who had filed‑ incorrect returns in the first instance would be required to show "excess income" and thereupon he would get the benefit of the reduced rate of taxation upon such income which was deemed to be income previously withheld from the view of the taxation authorities. It is evident that these provisions would not enable such an assessee to give fresh figures for his income showing less income than was previously disclosed, or even a loss. The provisions of the Martial Law Regulation were in the nature of exceptions to the general law of the income‑tax, namely the Income-tax Act and they must be consequently applied within their terms,, strictly construed. Therefore, it is plain that the provisions of the first three sub‑paragraphs in paragraph 2 of the Regulation did not come into' play unless an "excess income" was shown, so that to show no "excess income" or a negative "excess income" would not attract these provisions. Consequently, no assistance can be derived from these three sub‑paragraphs for interpreting the fourth sub‑paragraph in the sense desired by the present assessee. This case clearly falls outside the purview of the relevant provision in the Martial Law Regulation, and the Income‑tax Authorities were right to deal with it under the provisions of the Income‑tax Act, the more so since they had brought those provisions into play before the Martial Law Regulation came into force. The appeal is accordingly dismissed with costs. A. H. Appeal dismissed.