Tax demand cannot rest on unofficial reassessment or alleged payment liability outside the statute

No agreement to pay excess profits tax was proved, as the evidence disclosed no writing or other material supporting such liability and the concurrent findings were not shown to be perverse. No estoppel arose against the assessee because the challans had the excess profits tax heads scored out, and section 111 of the Cochin Income-tax Act did not bar a suit that challenged an alleged appropriation of payments and asserted liability outside any assessment order. The demand notices also could not stand even for the reduced amount, because the assessment liability had been indirectly revised without authority of law. The Revenue's challenge therefore failed, and the assessee succeeded.

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Issues: (i) Whether the assessee had agreed to pay excess profits tax in addition to income-tax; (ii) whether the assessee was estopped from denying liability to excess profits tax and whether section 111 of the Cochin Income-tax Act barred the suit; (iii) whether the demand notices could be sustained to the extent of Rs. 21,884.81.

Issue (i): Whether the assessee had agreed to pay excess profits tax in addition to income-tax.

Analysis: The evidence disclosed no writing or other material showing any agreement by the assessee to pay excess profits tax. Both courts below recorded concurrent findings that no such agreement was proved, and the notification invoked in support of the case referred only to income-tax and Income-tax Officers. Those concurrent findings were not shown to be perverse or unsupported by evidence.

Conclusion: The existence of any agreement to pay excess profits tax was not proved, and the finding was against the Revenue.

Issue (ii): Whether the assessee was estopped from denying liability to excess profits tax and whether section 111 of the Cochin Income-tax Act barred the suit.

Analysis: No factual foundation for estoppel was established, especially since the challans relied upon had the heads relating to excess profits tax scored out and the assessee had later taken the stand that no such tax was due. As to the statutory bar, section 111 only prohibited a suit to set aside or modify an assessment. The suit in substance challenged an alleged appropriation of payments and the asserted liability to excess profits tax outside any assessment order, and therefore did not fall within the prohibition.

Conclusion: There was no estoppel, and section 111 did not bar the suit; these points were decided in favour of the Assessee.

Issue (iii): Whether the demand notices could be sustained to the extent of Rs. 21,884.81.

Analysis: The amount was worked out by revising the assessment orders otherwise than under any statutory provision. The assessment orders had to remain as they stood until altered according to law, and neither the counsel nor the High Court could revise them indirectly. The demand notices could not therefore be upheld for the reduced amount.

Conclusion: The demand notices were not valid even to the extent of Rs. 21,884.81, and this issue was decided in favour of the Assessee.

Final Conclusion: The Revenue's appeal failed, while the assessee's appeal succeeded to the extent that the partial validation of the demand notices was set aside.

Ratio Decidendi: A tax demand cannot be sustained by altering assessment liability except under the governing statute, and a civil suit is not barred where it challenges an alleged liability or appropriation outside a statutory assessment.

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