1960 (5) TMI 5 - SC - Income Tax

Supreme Court Invalidates Tax Notice Exceeding Limitation Period

The Supreme Court, concurring with the High Court and Tribunal, held that the notice issued under section 11(1) of the Business Profits Tax Act on January ... Whether the Income-tax Officer had jurisdiction to assess the assessee firm under the Business Profits Tax Act by issue of a notice under section 11(1) of the Business Profits Tax Act on January 12,1953, in respect of the chargeable accounting period November 13, 1947, to October 31, 1948, without having recourse to section 14 of the Business Profits Tax Act ? Whether the business profits tax assessment could be considered to have been validly made ? Held that:- In view of the construction we have placed on section 14 of the Act on the words 'profits escaping assessment' that they apply to assessments where notice has been given and has resulted in no assessment and where due to inadvertence, oversight or other circumstances no notice was given, it is difficult to interpret section 11 in the manner contended for by the appellant. In our opinion the assessment which was sought to be made was without jurisdiction and the appeal must therefore fail. Issues Involved:1. Jurisdiction of the Income-tax Officer under section 11(1) of the Business Profits Tax Act.2. Validity of business profits tax assessment if the notice under section 11(1) is issued beyond the period specified in section 14.Issue-wise Detailed Analysis:1. Jurisdiction of the Income-tax Officer under section 11(1) of the Business Profits Tax Act:The primary issue was whether the Income-tax Officer had jurisdiction to assess the assessee firm by issuing a notice under section 11(1) of the Business Profits Tax Act on January 12, 1953, for the chargeable accounting period from November 13, 1947, to October 31, 1948, without recourse to section 14 of the Act.The appellant argued that sections 11 and 14 apply to different circumstances: section 11 for original assessments and section 14 for cases where profits have escaped assessment. The appellant contended that section 11 does not prescribe a period of limitation for issuing the first notice to furnish a return, whereas section 14 applies when profits have escaped assessment and imposes a four-year limitation.The High Court and the Tribunal held that sections 11 and 14 must be read together, and the four-year limitation in section 14 should also apply to notices under section 11. This interpretation was based on the idea that if profits escaping assessment could only be taxed within four years due to section 14, then the initial notice under section 11 must be issued within the same period.The Supreme Court, in its majority judgment, upheld the High Court's view, emphasizing that sections 11 and 14 should be read together. The Court stated that the limitation period mentioned in section 14 is an important indication of the period within which notices under section 11 should also be issued. Consequently, the notice issued on January 12, 1953, was deemed invalid as it was beyond the four-year period from the end of the chargeable accounting period.2. Validity of business profits tax assessment if the notice under section 11(1) is issued beyond the period specified in section 14:Given the negative answer to the first issue, the second issue addressed whether the business profits tax assessment could be considered valid if the notice under section 11(1) was issued beyond the period specified in section 14.The High Court and the Tribunal concluded that since the notice under section 11 was issued beyond the four-year limitation period, the assessment was invalid. The Supreme Court's majority judgment concurred, affirming that the assessment sought to be made was without jurisdiction due to the invalidity of the notice under section 11.Separate Judgment by Hidayatullah, J.:Hidayatullah, J., delivered a separate judgment, disagreeing with the majority. He argued that section 11(1) should be interpreted independently and without any limitation period, as the Legislature did not explicitly provide one. He contended that section 14 deals with cases where profits have escaped assessment after an initial assessment attempt, while section 11 applies to original assessments. Hidayatullah, J., concluded that the notice under section 11(1) was valid and the assessment should be allowed.Conclusion:The Supreme Court, by majority judgment, dismissed the appeal, affirming that the assessment was without jurisdiction due to the invalidity of the notice issued under section 11(1) beyond the four-year limitation period specified in section 14.