Z,avtrbhai v. COMMISSIONER OF EXCESS PROFITS

Order

"The Central Board of Revenue having considered the application of E. D. Sasoon United Mills Ltd. under sub-section (3) of section 26 of the Excess Profits Tax Act, 1940, the following circum 'Stances, viz.,- that, by reason of That the provision of buildings, plant or machinery required for the purposes of the which will not be business after the termination of the present hostilities, the computation of the profits of that business <luring the chargeable accounting period commencing 1st January, 1941, and ending 31st December, 1941, in • S.C.R. SUPREME COURT REPORTS 813 accordance with the provisions of Schedule I of the Act would be inequitable.

I (the First Secretary, Central Board of Revenue) the Central Board of hereby give you notice that Revenue has directed that, allowance of Rs. 4,06,394 shall be made in respect of such circumstances, in computing the profits of such chargeable accounting period,-such allowance inclusive of all depreciation allowable for excess profits tax purpose in respect of the assets in question." There were similar applications by the assessees for relief under section 26(3) of the Act for the accounting periods 1942 and 1943, and similar orders were passed by the Central Board of Revenue granting allowance respectively of Rs. 4,00,000 and Rs. 3,94,000. 1954 India United Mills Ltd. v. CommissioMT ef Excess Prefits Tax, Bombay. V enkatarama Ayyar J. In decided The war terminated on 31st March, 1946. assessable profits of the course of enquiry into Company for the chargeable accounting period ending 31st March. 1946, the Excess Profits Tax Officer found and machinery in respect of that the buildings, plant which relief had been granted under section 26(3) of the Act were being actually used by the assessees termina the purposes of their business even after tion of the hostilities. He therefore to take section action under 15 of the Act, and issued the thereunder to them for re-opening the requisite notices the years 1941, 1942 and 1943. That assessment was resisted by them on the ground that the facts dis covered did not relate re-opemng the could not assessments for those years. By his order dated 28th December, 1948, the Excess Profits Tax Officer over ruled this contention, and revised the assessments for the periods in question on the footing that there were no grounds for granting relief to the assessees section 26(3) of the Act. This order was confirmed on appeal by the Appellate Assistant Commissioner, but was reversed by the Appellate Tribunal, which held by a majority action under section 15 of the Act on the basis of facts, subsequently. The which had come into reference under respondent therefore form the basis for that it was not open to the Officer to the years of account, thereupon existence applied 1'74 - • 814 SUPREME COURT REPORTS fl955] 1954 India United Mills Ltd. v. Commissoner of Excesr Profits Tax, Bombay. Venkatarama Ayya> ]. section 66(1) of the Income-tax Act, and section 21 of the Act, and on tha_t application, the Tribunal referred the following question of law for the decision of High Court: "Whether for the charge able accounting periods 1941, 1942 and 1943 are liable to be cancelled on the ground that the Excess Profits Tax Officer erred in invoking the prov1s10ns of section 15 of the Excess Profits Tax Act." revised assessments reference came before Chagla C. There was also another question referred Tribunal to the High Court, and that was answered adversely to the appellant. But ~s no argument was is no need addressed before us on that question, to refer to it. The J. and Tendolkar ]., who disagreeing with the Tribunal held that the fact "the assessee had obtained excessive relief" and the discovery of the fact that it has used buildings, plant or machinery for the purpose of its own business after the war" were sufficient to bring the case within accordingly the purview of section 15 of the Act, and answered the question in the negative. The correctness of this decision is challenged in this appeal, which comes before us by special leave, on the ground that on a proper the Excess Profits Tax construction of that section Officer had, on the facts found, no power to assessment for 1942, and 1943. accounting periods revise 1941, Section 15 of the Act is as follows : "If, in consequence of definite information which has come into his possesswn, the Excess Profits Tax Officer discovers that profits of any chargeable account ing period chargeable to excess profits tax have escaped assessment, or have been under-assessed, or have 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 111 proceed to assess a notice under section 13, and may or re-assess the amount of such profits liable to excess 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." - • • • 1954 India United Mills Ltd. v. Commissioner of Excess Prefits Tax, Bombay. Venkatarama Ayyar J. S.C.R. SUPREME COURT REPORTS 815 escaped assessment For this section to apply, two conditions must be the profits of any chargeable accounting satisfied : (1) or must have period must have subject been under-assessed, or must have been of excessive (2) that must have been relief ; and discovered by the Excess Profits Tax Officer in con sequence of definite information. There is no question the first condition has been that on the facts found, satisfied. The representations on which the appellant obtained relief under section 26(3) of the Act were that the buildings, plant and machinery would not be fit It was only on that ground that for use after the war. relief could be granted under that provision. And when the appellant continued to use the machinery in the war, the very termination of business after basis on which relief had been granted to it had dis that the assessable profits appeared, and the result was periods had been subject of excessive relief. the chargeable accounting The controversy during the that facts which the question limited whether on the facts found the Excess Profits Tax Officer could be held to have discovered that there was grant of excessive relief. The contention of Mr. Kolah on behalf of the appellant was that discovery purpose of section 15 of the Act must be of facts which chargeable accounting were in existence existence period, and subsequent to the chargeable accounting period could under no circumstances be made the basis for reassess ment of the profits of that period. On behalf of the respondent, learned Attorney-General contended that the words "If the Excess Profits Tax Officer dis covers" in section 15 of the Act meant nothing more than that "if the Excess Profits Tax Officer finds or satisfies himself"; that importing into that discovery should relate during the charge able accounting that when once it was found by the Excess Profits Tax Officer that the buildings, plant and machinery were in use after the accordingly there had been a grant of war, and that to facts in existence period ; and there was no justification the section a limitation 14-88 S. C. India/59. 1954 India United Mills Ltd. v. Commissioner of Excess Profits Tax. Bombqy. V enkatarama A1;1ar J. , 816 SUPREME COURT REPORTS [1955] excessive relief, the fully satisfied. requirements of the section were in its It is general into existence Considering the question on the language of section 15 of the Act, it is difficult to find therein any support for the contention, which has been urged on behalf of the appellant. terms, and would apply whenever. there is,. as a result of definite informa Profits Tax Officer that tion, a finding by the Excess chargeable profits had escaped assessment, or had been under-assessed, or had subject of excessive relief. There is nothing in the wording of the section which would exclude its application, when that finding is based on facts which come sequently. the word It is argued by Mr. Kolah that "discovers" can aptly be used only when the facts on which the discovery is made were in existence during In its natural and the chargeable accounting period. ordinary sense, the word "discovers" carries no limitation. The meaning given to in the Oxford English Dictionary is "the finding out or bringing to light that which was previously (Vol. 3, page 433). It will therefore be correct to say that when a person comes to know of a fact of which he had no previous k_nowledge he discovers that fact, whether his want of knowledge is due to its not having been in existence during the material period, or to its having been unknown to him even though it might have been in existence. The word thus being one of wide import, what meaning it bears particular enactment must depend on the context. unknown." in any We must accordingly examine what indications there the precise connotation are in the Act, which will show of the word "discovers" in section 15 of the Act. That section is, should be emphasised, not a charging section, but a machinery section. And a machinery section should be so construed as to effectuate charging sections. Section 15 is. intended to vest 111 the Excess Profits Tax Officer a power to amend the assessment, when it is found that the relief granted is in excess of what the law allows. One of the sections ·.under which relief could be granted under the Act is • 1954 India United Mills l.td. v. Commissioner of Excess Pro.fits Tax, Bombay. Venkatarama AyyarJ S.C.R. SUPREME COURT REPORTS 817 granted when section 26(3), and therefore section 15 must be so inter preted as to confer a. power on the Excess Profits Tax Officer to revise the assessment when relief had been erroneously granted under that section. Now, section 26(3) provides for relief being buildings, plant or machinery would not be required by the assessee for his business after the war. And when that after obtaining a relief under that it is section, the assessee uses buildings, plant and machinery in his business that he has in after the war, and consequence obtained a relief to which he was not entitled under the Act, where is the machinery set up by the Act for imposing the correct charge, unless it be under section 15 ? And how is that section to be to be limited to facts, which invoked if "discovery" is accounting were in existence during the period ? The relief to be granted under section 26(3) is by its very nature with reference to a state of affairs in futuro; and a finding erroneously granted reached only on the basis of facts which must arise subsequent to the chargeable account ing period. To hold that no action could be taken in such cases under section 15 is to hold that the stz, tute has provided no machinery for carrying into effect the conditions prescribed in section 26(3). that it has been chargeable could be to proceed under that proviso, and appropriate conditions for safeguarding It was contended that the Central Board of Revenue to section 26(3), have might, acting under the proviso imposed that section, interests before granting a relief that when there was a failure to observe the conditions of that section, the only course open to the respondent that action section 15 was incompetent. This argument proceeds on a misconception of if a condition had been imposed under section 26(3). that condition was the proviso to that could be subsequently for reassess taken thereon section 26(3) ; and the machinery therefore is provided only in section 15 of the Act. The scope of the two section 26(3) sections being different, the proviso broken, the profits, ignoring the relief granted initiation of proceedings that section, and the only action the true • 1954 India United M;/ls Ltd. v. Commissioner of Excess Profits Tax, Bombay. Venkatarama Ayya,J. 818 SUPREME COURT REPORTS r19551 .... \,,,<;.;._ i,.~- cannot be construed as jurisdiction conferred by section 15 of the Act. affecting, to any extent, 1921 contention. 1932 he had obtained We may now examine the decisions which have been cited by Mr. Kolah in support of his In Dodworth v. Dale('), the assessee, Dale, married one Kathleen Richards in 1921 and lived with her till 1933, in which year he obtained a decree declaring the marriage null and void on the ground of her incapacity. reliefs under From section 18(1) of the Finance Act under which a claimant is entitled to a deduction if he proves that "for t!ie year of assessment he has his wife living with him or that his wife is solely maintained by him during the In 1934 the year of assessment." Inspector of Taxes made additional assessments in respect of the deduc on the tions made during ~he years 1928 to ground that the marriage having been declared void ab initio, Dale must be held to have "obtained a deduction this Act" as provided in section 125 not authorised by of the Income Tax Act, 1918. It was held by Lawrence J. that the additional assessments were not justified under section 125, because a decree declaring marriage a nullity was not to wipe out the past and to undo what had been done, and that under section 18(1) of the Finance Act, the basis of relief was a de facto marriage. Then follow certain observations, on which the appellant relies : effect of 1932 to facts which arise after In my opinion it is not lawful "There is, however, another difficulty in the way for an of the Crown. to be additional assessment or an original assessment the year made by reference of assessment. In my view that is the reasoning of the decision of Rowlatt J. in Anderton and Halstead Ltd. v. Birrell(') ......... . In my view the revenue authorities to make a fresh assessment on him by reason of a fact which is a real fact which arose after the year of assessment." incompetent Though these observations appear at support the contention of Mr. Kolah, when examined closely it will be seen that that is not their true effect. (>) (1936] 2 K. B. 503; 20 Tax Gas. 285. (2) [1932] I K. B. 271; 16 Tax Cas. 200. • •• .. .. -,... .... • S.C.R. SUPREME COURT REPORTS 819 that fact. relief for relief for the years 1928 The assessee had been granted to 1932, because he was in fact living with his wife or maintaining her during that period. The decree passed If on that fact the in 1933 could not alter . under those years assessee was entitled to section lS(l) of the Finance Act, then no question arose of his having obtained a deduction to which he was not entitled under the Act, in which event alone there 125. The could be decree passed in 1933 could not therefore be said to be "discovery" on which action section 125, not because it was a subsequent event, but had no effect on a relief which because it could have depended on facts then in existence. That that ratio of the decision will appear following passages in the judgment : further assessment could be taken under section 1954 India United Mills Ltd. v. Commissioner ef Excess Prqfits Tax, Bombay, Venkatarama Ayyar J. "I apprehend 1s no distinction in this that there matter between an original assessment and an addi tional assessment under section 125. Taking section 125 Income Tax Act, 1918, for the purposes of of the illustration, and because it was the section under which the additional assessments were made seems to me that section 18 of the Finance Act, 1920, Income Tax Act, 1918, relate to the facts as and the they exist at chargeable was time. The person allowed a deduction, and he was rightly allowed a deduction at the time. He proved within the terms of section 18 of the Act of 1920 that his wife was living with him, and he was rightly allowed a deduction at that time." this case, The principle of this decision is should not be reopened on the events, when been made remained unaffected therebv. assessments of subsequent the facts on which the assessments had In this connection, reference ~ay be made to the decision in Gray (H. M. Inspector of Taxes) v. Lord Penrhyn(' ), where it was held that action under section 125 could be to events which happened relation to the facts on which the assessments had been made. There, the assessee, who was the owner of a those events having subsequently, taken with reference (1} (1937) 21 True Oas. 252. •1954 India United A!fills Ltd. .v. CommissW11cr of Excess Profits Tax, Bombqv. Venka!arn.ma AyJar ]. 820 SUPREME COURT REPORTS [1955} In fact, allowed as business expenses. income-tax returns various quarry ha<l shown in his to labourers, and those amounts had amounts as paid amounting to £ 5,201 had been misappropriated by the officers. employed by him and had not been ~xpended. The defalcations were subsequently discovered, and in 1934 the asscssee realised that amount from his auditof' Income and his insurer as damages for negligence. The t:ix Inspector sought 1930 to 1933 amount as wrongly deducted during alternative, 1934. The Commis assess it as a business income in the assessments for 1930 to 1933 could sioner held that in 1934, as not be reopened on the basis of that was an event subsequent to the period of assess ment, one of the cases relied on by him in support of J. his conclusion being Dodtl)Orth v. Dale (1). Finlay this view. He held firstly that the disagreed with receipt and amount added : those years, or in the could be treated the assessments as a business by claiming the receipt to revise "If I felt any <liflicnlty about that, which I do not, I should be prepared to say that there is nothing in the authorities which prevents re-opening which manifestly ought to be made, if necessary, and that if necessary the previous years ought to be re-opened". Then there is the decision in Anderton and Halstead Ltd. v. Birrell (') referred to in Dodworth v. Dale (') the assessees had and relied on by Mr. Kolah. There, irrecoverable in 1921 and written off certain debts as 1922. The· Inspector of Taxes had, on a consideration of all the facts, agreed to this, and assessments were made on the footing that they were bad debts. There to have dealings with after, tl1e assessees continued in sub those debtors, and gave them further credit sought sequent years. On this, that the debts review the assessments on the were not, bad debts. in fact, J. "the word contention, Rowlat\ 'discover' does not, in my view, include a mere change of opinion on the same facts and figures In negativing Inspector observed ground (1) [1936) 2 K. B. 503; 20 'I'ax Cases 285. (2) [1932] I K. B. 271; 16 T'ax Cases 200. • \ • 1954 India United Mills Ltd. \'. Commissiotur of Excess Profits • Tax, Bombay. Ver.katarama Ayyar]. S.C.R• SUPREME COURT REPORTS 821 upon the same question of accountancy, being .a ques tion of opinion", that under the Rules, the estimate to what. extent a debt is bad was "not a prophecy to be judged by after events, but a valuation of. an asset .de praesenti upon an uncertain future to be 1udged with the then regard to its soundness as an estimate upon. facts and probabilities'', and estima~e on~e made could not, on the same materials, be revised m sub~equent years. . come into existence only foland Revenue Commissioners Apart from the fact that some of the observations contained in this judgment were considered by Finlay J. in Williams v. Trustees of W. W. Grundy (1) and by the Court of Appeal in Commercial Structures Ltd. v. the decision Briggs("), to have been widely expressed, itself has no application to the the present facts of case. We are concerned here not with a valuation to be bad, but with a praesenti of a debt estimated relief granted with reference to a state of facts which in the were anticipated v. future. Moreover, Pearson : Same v. Pratt(3) and Anderton and Halstead v. Birrell( 4 ) are decisions on section 125 of the English Income Tax Act of 1918. There has been quite a literature on the meaning of "discovers" occurring in that section and in the corresponding sec Income Tax statutes, and the tions of other English question has also been considered in the Indian Courts the Indian Income-tax on the language of section 34 of of 1948. amendment Act, as Whatever the position if the question were to arise under the Indian Income-tax Act-and there is no need to express any final opinion on it-having regard to the the provisions of the Excess nature and scope of Profits Tax Act and in particular section 26(3), we are 15 of of opinion the Act is of sufficient amplitude to take in subsequent events which have a material bearing on the facts and circumstances on which assessment had been made or that the word ''discovers" in section it stood prior to the word >.• (1) [1934] I K. B. 524, 533. (2) [1948] 2 A. E, R. 1041 at 1oi5, 1048 and 1049. \3) [1936] 2 K. B. 533. (4) [1932] 1 K. B. 271; 16 Tax Cas. 200. 1954 India United Mills Ltd. v. Commissioner of Excess Prefits Tax, Bombay. Vtnkatarama AYJar J, 1954 Novttnber I. 822 SUPREME COURT REPORTS [1955] relief granted, and that when the Excess Profits Tax Officer finds that an assessee to whom relief had been granted under section 26(3) has utilised the buildings, plant or machinery in business after the termination of the war, he is entitled to proceed under section 15 of the ·Act. In the result, the appeal fails, and is dismissed with • costs. Appeal dismissed. GENERAL FAMILY PENSION FUND I ' THE COMMISSIONER OF Il'iCOME-TAX, WEST BENGAL, [MEHR CHAND MAHAJAN C.J., s. R. DAS, GHDLAM HASAN, BHAGWATI and VENKATARAMA AYYAR JJ.] Indian Income-tax Act (XI of 1922), s. 10(7) and schedule Rule 2(a)(h) as published in 1939-Inco1ne-tax on insurance company Hotv ascertained-Statement of Depa1·tn1ental Representative, Effect of-Insurance Act (JV of 1938) s. 2(11)-Life Insurance business. to 1946-1947 are In accordance with the provisions of s. 10(7) of the Indian Income-tax Act, 1922, the profits and gains of Life Insurance busi to be computed ness for the periods 1943-1944 under Rule 2(a) and Rule 2(b) of the rules published in 1939 and contained in the schedule to the Act. This computation should be mac1e separately and independently once under Rule 2( a) and again under Rule 2(b ). On such computation income-tax is to be levied It is erroneous on the greater of the t\VO amounts so co1nputed. to adopt the computation made under Rule 2(b) as the basis computation under llule 2(a), Mere statement of the Departn1ental Representative of Income-tax Department to the Tribunal referred Tribunal. the Tribunal cannot have the effect of a finding of fact by the order Business of a con1pany \Vhich consists in granting terminable is an insurance business within the pensions or annuities dependent on hu1nan life in favour subscribers or their non1inees, meaning of s. 2(11) of the Insurance Act, 1938. - ,, •· . ...t..