High Court Of Delhi
CIT vs. Sitaram Jaipuria (HUF)
Sections 144B, GNRL CL 13(2), GNRL CL 21
S.B. Sinha, C.J. & A.K. Sikri, J.
IT Ref. No. 77 of 1983
21st December, 2001
Counsel Appeared
R.D. Jolly with Ajay Jha, for the Petitioner : Anoop Sharma, for the Respondent
JUDGMENT
S.B. SINHA, C.J. :
The questions, which have been referred by the Income-tax Appellate Tribunal, Delhi Bench ‘D’, Delhi (hereinafter referred to as the ‘Tribunal’), for opinion of this Court are as follows : “1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally right in holding that the second draft order which was sent to the assessee before the date of normal limitation was an invalid order ? Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the capital gains should be assessed as long-term capital gains? Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that its clear finding to the effect that a part of the capital gains was merely academic, and in directing that such short-term capital gains should be assessed as long-term capital gains ?”
2. The relevant facts, which are required to be noticed, are as follows : The assessment of capital gains on the sale of 355 kg. of silver utensils, which were sold by the assessee during the accounting year ending on 7th April,
1976, is in dispute. The assessee claimed that the gains arose on the said sale could not be taxed as the personal effects held for personal use by the assessee and the dependant members of his family being exemption under s.
2(14)(ii) of the IT Act, 1961 (in short, the ‘Act’). The Income-tax Officer (in short, the ‘ITO’) passed the draft assessment order dt. 9th Feb., 1979, wherein the ITO proposed that the capital gains would be taxed as long-term capital gains, pursuant whereto the assessee filed his objection on 15th Feb., 1979. The ITO thereafter, passed another draft assessment order dt. 15th March, 1979, wherein the ITO changed his opinion on further reflection and held that the capital gains would be taxed as short-term capital gains. The assessee filed objection dt. 23rd March, 1979, questioning the jurisdiction of the ITO to pass second draft assessment order. The Inspecting Assistant Commissioner (in short, the ‘IAC’) passed the order dt. 27th July, 1979, under s. 144B of the Act after considering both the draft assessment orders and the objections of the assessee wherein it was directed that the capital gains be assessed as short-term capital gains without giving the exemption under s. 2(14)(ii) of the Act. The assessee preferred an appeal before the CIT(A), who held that more than one draft assessment order could be issued by the ITO, and therefore, there was no illegality in the action of the ITO in passing two draft assessment orders. It was further held that the silver utensils did not constitute personal effects, and, therefore, capital gains on sale thereof was taxable, hence the profits on sale of 213 kgs. of silver utensils were taxable as long-term capital gains and on sale of 142 kgs. as short-term capital gains. The assessee again preferred an appeal before the Tribunal, who held that ITO had no jurisdiction to pass the second draft assessment order. On being moved by Revenue for reference, the questions, as set out above, have been referred for opinion of this Court.
3. The questions referred to this Bench thus involve a question as regards interpretation of s. 144B of the Act.
The said provision is in the following terms : “144B(1).—Notwithstanding anything contained in this Act, where, in an assessment to be made under sub-s. (3) of s. 143, the ITO proposes to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under sub-s. (6), the ITO shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee. (2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation to the ITO within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the ITO may allow on an application made to him in this behalf. (3) If no objections are received within the period or the extended period aforesaid, or the assessee intimates to the ITO the acceptance of the variation, the ITO shall complete the assessment on the basis of the draft order. (4) If any objections are received, the ITO shall forward the draft order together with the objections to the IAC and the IAC shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the ITO to enable him to complete the assessment : Provided that no directions, which are prejudicial to the assessee, shall be issued, under this subsection before an opportunity is given to the assessee to be heard. (5) Every direction issued by the IAC under sub-s. (4) shall be binding on the ITO. (6) For the purposes of sub-s. (1), the Board may, having regard to the proper and efficient management of the work of assessment, by order, fix from time to time, such amount as it deems fit : Provided that different amounts may be fixed for different areas : Provided further that the amount fixed under this sub- section shall, in no case, be less than twenty-five thousand rupees. (7) Nothing in this section shall apply to a case where an IAC exercises the powers or performs the functions of an ITO in pursuance of an order made under s. 125 or s. 125A.” The said section was inserted by Taxation Laws (Amendment) Act, 1975, which took effect from 1st Jan., 1976. The purpose of the said section appears to be the reduction of the area of dispute between the ITO
and/or the Department making the assessment and the assessee.
4. Mr. Anoop Sharma, learned counsel appearing on behalf of the assessee, submitted that language of the said provision is absolutely clear and explicit. It refers to a draft order, which having regard to the purpose that seeks to achieve must be held to be final, inasmuch as once an objection thereto is filed, the ITO has no other option but to send the same to the Income-tax Appellant Commissioner (in short the ‘ITAC’)(sic). The learned counsel contended that once a draft order is issued, the second one would amount to review of his decision, which is not permissible in law. The learned counsel further submitted that having regard to the provisions contained in s. 154 of the Act, the only jurisdiction of the assessing authority is to make corrections in relation to clerical errors.
In support of aforementioned contentions, reliance has been placed on Sudhir Sareen vs. ITO & Anr. (1981) 128 ITR 445 (Del) : TC 11R.378, Aspinwall & Co. Ltd. vs. CIT (1996) 132 CTR (Ker) 448 : (1996) 220 ITR 617 (Ker) : TC 69R.760, Ambica Mills Ltd. vs. CIT (1998) 147 CTR (Guj) 347 : (1999) 235 ITR 264 (Guj) : TC S11.1274 and CIT vs. Hade Navigation (P) Ltd. (1999) 157 CTR (Bom) 355 : (1999) 239 ITR 726 (Bom).
5. Mr. R.D. Jolly, learned counsel appearing on behalf of the Revenue, on the other hand, contended that the aforementioned provision contains a procedure and does not deal with the substantive rights of the parties. According to the learned counsel, once mistake committed by the ITO is rectified by issuing a second draft order and an opportunity of hearing in relation thereto is granted, the assessee does not suffer any prejudice thereby. In support of the said contention, reliance has been placed on Aspinwall & Co. Ltd. vs. CIT (supra), Sarabjit Singh vs. CIT (1998) 234 ITR 641 (Del) : TC S11.1298, Ambica Mills Ltd. vs. CIT (supra) and R. Dalmia & Anr. vs. CIT (1999) 152 CTR (SC) 383 : (1999) 236 ITR 480 (SC). Chapter XIV of the Act rates to procedure for assessment. Sec. 143 of the Act deals with the procedure for making assessment. Sub-ss. (1) and (3) of s. 143 of the Act provide for computation of total income of assessee respectively without issuance of any notice as is otherwise provided under sub-s. (2) thereof. It is beyond doubt whatsoever that s.143 of the Act is a procedural provision, as thereby tax is not charged. Sec. 143 of the Act, in other words, cannot be said to be a substantive provision, being not a charging provision. Sec. 144B of the Act applies to all assessments completed after 1st Jan., 1976. The said provision was amended w.e.f. 1st Oct., 1984, as in terms thereof for the words “the ITO proposes to make any variation” the words “the ITO proposes to make before the 1st of October, 1984, any variation” were substituted. By reason of the aforementioned provision, the assessee is given an opportunity to make an objection as regards an order proposed to be passed, which is prejudicial to him. In the event, the amount of variation exceeds the amount specified by the Board, the ITO is required to forward a draft of the proposed assessment to the assessee and upon obtaining his objection, if any, as regards such variation, the draft order is to be forwarded together with the objection filed by the assessee thereto to the Dy. CIT, who thereupon issues such directions as he thinks fit for the guidance of the AO to enable him to complete the assessment after giving an opportunity of hearing to the assessee and the ITO makes his assessment accordingly. Sec. 144B of the Act, in our considered view, cannot be construed in isolation. It has to be construed having regard to the object and purport of making a draft order. Such a provision has been made with a view to prevent arbitrariness or unreasonableness on the part of the assessing authority and multiplicity of the assessment proceedings. The procedure laid down theirin although mandatory, but it cannot be said that only because an expression ‘a order’ has been used in circular, more than one draft order cannot be issued. In terms of s. 13(2) of the General Clauses Act, a ‘singular’ would include ‘plural’. For the purpose of interpretation of a procedural provision like s. 144B of the Act, the prejudice doctrine may also be invoked. Sec. 21 of the General Clauses Act envisages that power to issue an order would include a power exercisable in the like manner and subject to the like sanctions and conditions (if any), to add, amend, vary or rescind the same. Interpretation of the provisions of law must be made having regard to the object and purport thereof. It may be true that the ITO does not have a power of substantive review but the question of exercising a power to review would arise only when the order would otherwise be final. A draft order, as noticed hereinbefore, is not a final one and merely embodies the opinion of the ITO. Reasons for challenging his opinion has been stated by the ITO, as would appear from the fact noticed hereinbefore. Once such change in opinion is made and an opportunity of being heard is given, the opinion of the ITO together with such objections are required to be forwarded to the Dy. CIT before whom also the assessee get an opportunity of hearing. Guidelines issued by the said higher authority to the ITO would be binding on the latter and only on the basis thereof the assessment proceedings shall be finalized. It is, thus, evident that only because a second draft order is served, ordinarily the assessee would not be prejudiced, as the final outcome depends upon the opinion of the Dy. CIT. It is also not a case where the second draft order was issued upon considering the objections filed by the assessee.
In our opinion, therefore, it would be incorrect to contend that the second draft order under no circumstances can be issued. It is one thing to say that the ITO has absolutely no jurisdiction to issue a second draft order, but it is another thing to say that in the facts and circumstances of the case, he should not have issued the same.
In Sudhir Sareen (supra), a learned Single Judge of this Court interfered with matter inter alia, on the ground that such a second draft order was issued at the instance of the higher authority. Such in not the position here.
In Hade Navigation (P) Ltd. (supra), whereupon strong reliance has been placed by learned counsel appearing on behalf of the assessee, it appears that the question had not been viewed from this angle.
11. We do not also, with utmost respect to the learned Judges of this Court and the Bombay High Court, subscribe to the view that once the draft assessment is prepared and the variation in the return income is forwarded to the assessee, the quasi judicial function of the ITO comes to an end and the same is final assessment order so far as the ITO is concerned. Such an observation, in our opinion, overlooks the fact that draft order passed by the ITO together with the objection, which may be made thereto by the assessee, would still not be final inasmuch as the same would be dependent on the final opinion, which may be expressed by the higher authority pursuant to the guidelines, which may be issued.
The Division Bench of the Bombay High Court has relied upon the decision of the Division Bench of the apex Court in Panchamahal Steel Ltd. vs. U.A. Joshi, ITO & Anr. (1997) 142 CTR (SC) 178 : (1997) 225 ITR 458 (SC) : TC S9.1057, but in the said case, the apex Court was concerned with absolutely a different situation as therein it was held having regard to the provisions contained in sub-s. (5) of s. 139 of the Act that after a draft order is issued, the assessee cannot file any revised return. The question raised herein had neither been raised nor answered by the apex Court. It is now well-settled that a decision shall not constitute a binding precedent on a point, which was not argued.
In Aspinwall & Co. Ltd. (supra), the Kerala High Court has distinguished the decision of this Court in Sudheer Sareen (supra) stating that : “We are unable to accept the process of reasoning because of the inbuilt provisions of the two sections making it clear that the sections came on the statute book for safeguarding the interest of the assessee to the extent that the provisions provide hearing in the matter of there being necessity or expediency to locate situations of escaped assessment. Even otherwise, as observed above, occasions of coming to notice situation of irregular assessment or obvious mistakes could not be understood to be legislatively controlled to a single occasion in regard thereto. It will have to be appreciated that the draft order if it is found to be required to be modified could not also be considered to be a second draft order. It appears that the parties have proceeded on the basis that the second draft order has come into emergence when the material on record clarifies the situation to the contrary, bringing on record a situation of modification in the nature of necessary amendment to the original situation. In our judgment, such statutory provisions relating to the matters of procedure cannot be understood in the restrictive sense of literal interpretation and have to be understood that an occasion of issuance of draft assessment has to be meaningfully understood in relation to an occasion for modification. Such occasion cannot be in isolation in continuity of time and such occasion can be legitimately contemplated to occur more than once depending on the situation demanding.”
In Ambica Mills Ltd. (supra), the High Court has stated the law in the following terms : That s. 144B of the IT Act, 1961, is a procedural provision under which the ITO forward” a draft order to the assessee. At that time, such draft order is only a draft of the proposed order of assessment in which the ITO proposes to make variations in the income or loss returned, which is prejudicial to the assessee and the amount of variation exceeds the amount fixed by the Board. At that stage of the assessment proceedings taken under s. 143(3) of the Act nothing is final. Therefore, if the ITO detects some error or omission in the proposed order and revises it at that earlier point of time forwarding the revised draft order to the assessee, it cannot be said that he has made two independent proposed orders. The proposed order as revised remains the draft order only. The proceedings do not in anyway get vitiated especially when he followed again the procedure of sending it to the assessee to enable him to object against the revised proposed order. There is no prejudice whatsoever caused to the assessee nor is any vested right of the assessee adversely affected thereby. Until the assessment is completed by the ITO under s. 143(3) of the Act, he remains free to exercise his powers to complete the assessment by sending a revised draft order.” Yet again D.K. Jain, J. on a difference of opinion between the two learned Judges of this Court in Sarabjit Singh (supra) has clearly held that s. 144B of the Act is a procedural provisions. It is now well known that a decision is an authority for what it decides and not what can be logically deduced therefrom.
For the reasons aforementioned, we are of the opinion that the answers to the questions must be rendered in negative, i.e., in favour of the Revenue and against the assessee.
This reference is disposed of accordingly.
[Citation : 254 ITR 476]
