1991-VIL-604-AP-DT

Equivalent Citation: [1993] 202 ITR 681, 117 CTR 300

ANDHRA PRADESH HIGH COURT

Date: 09.08.1991

PALAKOL CO-OPERATIVE SUGARS LIMITED

Vs

INCOME-TAX OFFICER

BENCH

Judge(s)  : A. LAKSHMANA RAO., SYED SHAH MOHAMMED QUADRI

JUDGMENT

The judgment of the court was delivered by

SYED SHAH MOHAMMED QUADRI J. -The petitioner is a co-operative society and an industrial undertaking engaged in the manufacture of sugar. Its accounting year ends on September 30, of each year. For the accounting year ending on September 30, 1985, which is relevant for the assessment year 1986-87, the petitioner could not file its return on or before June 30, 1986, the time allowed by sub-section (1) of section 139 of the Income-tax Act, 1961. On June 27, 1986, it made a request in Form No. 6 seeking extension of time for filing the return till September 30, 1986, on the ground that the return forms were not available and that the report of the audit under section 44AB from the chief auditor of the office of the Registrar of Co-operative Societies was awaited. However, that request was rejected. But the petitioner filed its return on September 30, 1986, disclosing a loss of Rs. 68,13,996, which is the subject-matter of controversy. It appears that the petitioner had unabsorbed loss of Rs. 4,45,85,284, of the earlier years which has to be carried forward and set off against the profits of the subsequent year. On August 20, 1986, the Taxation Laws (Amendment and Miscellaneous Provisions ) Bill, 1986, with regard to the amendment, inter alia, of certain provisions of the Income-tax Act, 1961 ( for short, " the Act "), was introduced in Parliament. It became law having received the assent of the President on September 10, 1986, and the Act is called the "Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 ( for short, " the Amendment Act Section 12 of the Amendment Act amended sub-section (3) of section 139 of the Act with effect from April 1, 1987, and inserted sub-section (10) with effect from April 1, 1986. Having regard to the provisions of the newly introduced sub-section (10) of section 139, the respondent through his letter dated September 29, 1987, informed the petitioner that the return filed by it on September 30, 1986, was treated as non est. In this writ petition, the petitioner challenges the validity of this letter by seeking a writ of mandamus directing the respondent to treat the return filed by it on September 30, 1986, for the income-tax assessment year 1986-87 as a valid return and further to direct the respondent to make an assessment on the basis of the said return.

The respondent filed a counter-affidavit and an additional counter-affidavit stating, inter alia, that the petitioner had nine months' time after the date of the closure of its accounts to file its return on or before June 30, 1986. The reasons for which the petitioner asked for extension of time were not beyond its control. The assessee should have made its own arrangements for getting the return forms as several agencies supply the forms, while the Department supplies the forms free of charge. It is added that as many as 26 returns were filed within time, i.e., June 30, 1986, by various assessees. The assessee (petitioner) not having arranged its affairs to suit the requirements of law, cannot find fault with the Income-tax Officer on the ground that discretion was not exercised properly in not granting extension of time. It is further stated that the order not granting extension was not challenged by the petitioner by way of a writ petition. The return did not show any taxable income and the same, not having been filed within the time allowed under section 139(1) of the Act, was treated as non est under sub-section (10) of the Act.

In the reply affidavit filed by the petitioner, it is stated that the auditors of the State Government audited the accounts of the petitioner-society, which was completed on March 10, 1986. The final report was prepared on June 30, 1986, and was sent for final closing. It was sent to the chief auditor on July 14, 1986, and the chief auditor issued the certificate on June 30, 1987. It is stated that completion of the audit by the Co-operative Audit Department is not within the control of the petitioner and that the petitioner did all that was within its power by acting diligently in submitting the accounts. It is further stated that filing of the audit report along with the return is a mandatory requirement under section 44AB of the Act and as the report was not furnished by June 30, 1986, it asked for extension of time till September 30, 1986. Even by that date, the audit report was not available and, therefore, the petitioner submitted the return without the audit report on September 30, 1986. It is also stated that the petitioner was advised to submit the return on the forms supplied by the Department as the forms supplied by other agencies had no assurance of being authentic and, therefore, the petitioner was justified in looking to the Department for supply of forms, but the forms were not supplied in time. The respondent, it is stated, did not specify as to whether the forms were made available.

Sri Y. Ratnakar, learned counsel for the petitioner, submits that subsection (3) of section 139 was amended with effect from April 1, 1987, whereas sub-section (10) was inserted, retrospectively, with effect from April 1, 1986, and, therefore, the new provision has to be so construed as not to take away the vested right of the petitioner under the unamended provisions of sub-section (3) of section 139 of the Act.

To appreciate the contention of learned counsel, it would be useful to read sub-section (3) of section 139 of the Act as it stood before the amendment and in its amended form, as well as sub-section (10) of section 139.

Sub-section (3) of section 139 before amendment:

"If any person who has not been served with a notice under subsection (2), has sustained a loss in any previous year under the head 'Profits and gains of business or profession' or under the head 'Capital gains' and claims that the loss or any part thereof should be carried forward under sub-section (1) of section 72, or sub-section (2) of section 73, or sub-section (1) of section 74, or sub-section (3) of section 74A, he may furnish, within the time allowed under sub-section (1) or within such further time which, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, allow, a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return under sub-section (1)." Sub-section (3) of section 139 after amendment:

"If any person who has not been served with a notice under subsection (2), has sustained a loss in any previous year under the head 'Profits and gains of business or profession' or under the head 'Capital gains' and claims that the loss or any part thereof should be carried forward under sub-section (1) of section 72, or sub-section (2) of section 73, or sub-section (1) or sub-section (3) of section 74, or sub-section (3) of section 74A, he may furnish, within the time allowed under sub-section (1) or by the thirty-first day of July of the assessment year relevant to the previous year during which the loss was sustained, a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return under sub-section (1)."

Sub-section (10) of section 139 : " 10. Notwithstanding anything contained in any other provision of this Act, a return of income which shows the total income below the maximum amount which is not chargeable to tax shall be deemed never to have been furnished: Provided that nothing hereinbefore contained shall apply to,

(a) a return furnished in response to a notice under sub-section (2) of section 148 ;

(b) a return of a partner of a firm; (c) a return of a person who has claimed exemption of income from property held for charitable or religious purposes ;

(d) a return of loss which has been furnished before the thirty-first day of July of the assessment year relevant to the previous year during which the loss was sustained ; (e) a return furnished under sub-section (4B) in respect of political party ; and

(f) a return furnished in support of a claim for refund under section 237. "

A perusal of sub-section (10) of section 139 which is inserted by the Amendment Act and is given retrospective effect from April 1, 1986, would show that a return of income which shows the total income below the maximum amount which is not chargeable to tax shall be deemed never to have been furnished. It may be noticed that this sub-section begins with a non obstante clause and it has an overriding effect on the other provisions of the Act which, of course, include sub-section (3) of section 139. The proviso prescribes six situations which may be termed as exceptions to which the provisions of sub-section (10) do not apply. A return of loss which has been furnished before July 31, of the assessment year relevant to the previous year during which the loss was sustained, is one of the exceptions to sub-section (10). (Clause (d) to the proviso).

Before adverting to the meaning of clause (d) of the proviso to subsection (10), it would be appropriate to notice the provisions of sub-section (3) of section 139. Before its amendment, sub-section (3) enabled person to furnish a return of loss in the prescribed form and in the prescribed manner with such particulars as may be prescribed and have the return treated as filed under sub-section (1) of section 139 and to carry forward the loss subject to the following conditions :

(i) the person should not have been served with a notice under subsection (2) of section 139 ;

(ii) the person should have sustained a loss in any previous year under the head " Profits and gains of business or profession " or under the head "Capital gains" ;

(iii) the claim to carry forward the loss or any part thereof should be under sub-section (1) of section 72 which deals with carry forward and set off of business loss, sub-section (2) of section 75, which deals with losses in speculation business, or sub-section (1) or sub-section (3) of section 74, which deals with losses under the head " Capital gains ", or sub-section (3) of section 74A, which deals with losses in the activity of owning and maintaining race horses ;

(iv) the person should furnish the return within the time allowed under sub-section (1), or within such further time which, on an application made in the prescribed manner, the Income-tax Officer might in his discretion allow.

By amendment, the provision "such further time which the Income-tax Officer might allow on the application in sub-section (3), is deleted and in its place "by the thirty-first day of July of the assessment year relevant to the previous year during which the loss was sustained" is inserted. The consequence of this amendment is that a return of loss of the previous year has to be submitted under the head " Profits and gains of business or profession " or under the head " Capital gains ", claiming to carry forward the losses, either within the time allowed by sub-section (1) of section 139 or by the thirty-first day of July of the assessment year relevant to the previous year during which the loss was sustained.

Clause (d) of the proviso to sub-section (10), submits learned counsel, is in accord with the amended provisions of sub-section (3), which came into force with effect from April 1, 1987, and, therefore, the benefit of the unamended provision of sub-section (3) for filing the return of loss within the time allowed by the Income-tax Officer, i.e., on September 30, 1986, cannot be taken away by giving retrospective effect to sub-section (10) of section 139 with effect from April 1, 1986.

It has been noticed above that sub-section (3) of section 139 contemplates that, if any person has sustained any loss in any previous year under the head " Profits and gains of business or profession " or under the head "Capital gains" and claims that the loss or any part thereof should be carried forward and set off against the income, he has to file the return within the time allowed under sub-section (1) which would be June 30, 1986, or within such further time as allowed by the Income-tax Officer. It is only then that the provisions of the Income-tax Act would apply as if the return was filed under sub-section (1) of section 139. Admittedly, in this case, the request of the petitioner for extension of time was rejected by the Income-tax Officer and there was no valid return under sub-section (3) of section 139 to be treated as a return filed under sub-section (1) of section 139. Indeed, in this case the return was filed by the petitioner on September 30, 1986, i.e., after the Amendment Act came into force on September 10, 1986, and sub-section (10) was inserted with effect from April 1, 1986. Therefore, on the date the Act came into force, there was no return of the petitioner, much less a valid return under sub-section (3) of section 139 and as such it did not have any right which can be said to have been taken away by giving effect to sub-section (10) from April 1, 1986. It is, however, contended by Sri Ratnakar that, apart from a right to carry forward a loss, an assessee is entitled to carry forward unabsorbed depreciation and other unabsorbed allowances and this right is taken away by sub-section (10). Inasmuch as this question does not arise on the facts of this case, we do not propose to express any opinion on it. It is next contended that sub-section (4) of section 139 enables the petitioner to file the return within two years from the end of the assessment year and have the loss determined under the Act.

First we shall consider whether the return filed by the petitioner on September 30, 1986, is within the time specified in sub-section (4) of section 139. Sub-section (4) of section 139 reads as follows :

" (4) (a) Any person who has not furnished a return within the time allowed to him under sub-section (1) or sub-section (2) may, before the assessment is made, furnish the return for any previous year at any time before the end of the period specified in clause (b), and the provisions of sub-section (8) shall apply in every such case ;

(b) The period referred to in clause (a) shall be (i) where the return relates to a previous year relevant to any assessment year commencing on or before the 1st day of April, 1967, four years from the end of such assessment year ;

(ii) where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April, 1968, three years from the end of the assessment year ;

(iii) where the return relates to a previous year relevant to any other assessment year, two years from the end of such assessment year. "

From a perusal of clause (b)(iii) of sub-section (4), it is evident that a person has a right to file return relating to the previous year, if he has not filed one either under sub-section (1) or sub-section (2) of section 139 within two years from the end of the relevant assessment year, but before assessment is made. In the instant case, the assessment year is 1986-87 and, so the petitioner would be entitled to file the return before the end of the assessment year 1988-89, provided the assessment for that year had not been made. As admittedly the assessment had not been made before September 30, 1986, on which date the return was filed, the return filed by him would be within the time allowed under sub-section (4) of section 139.

Reliance is placed on a judgment of the Supreme Court in CIT v. Kulu Valley Transport Co. P. Ltd. [1970] 77 ITR 518, in support of the contention that the petitioner is entitled to have the loss determined on the return filed on September 30, 1986, which is within the time prescribed under sub-section (4) of section 139. That case arose under the Indian Income-tax Act, 1922 (for short, "the old Act"). The assessee in that case filed voluntary returns disclosing losses for the assessment years 1953-54 and 1954-55. The question was whether the assessee had the right to get the loss determined and carried forward under section 24(2) of the old Act in spite of the fact that the returns were not filed within the time specified in section 22(1) and the time had not been extended by the Income-tax Officer. In that case also, no notice was served on the assessee under subsection (2) of section 22. On a reference, the High Court answered the question in the affirmative holding that the assessee could carry forward the loss. This view was upheld by a majority of their Lordships of the Supreme Court in the above case.

We may now notice section 22(2A) of the old Act which can be said to be equivalent to section 80 of the Act of 1961, which was differently worded and was in the following terms : " Section 22(2A). - If any person, who has not been served with notice under sub-section (2) has sustained a loss of profits or gains in any year under the head 'Profits and gains of business, profession or vocation', and such loss or any part thereof would ordinarily have been carried forward under sub-section (2) of section 24, he shall, if he is to be entitled to the benefit of the carry forward of loss in any subsequent assessment, furnish within the time specified in the general notice given under sub-section (1) or within such further time as the Income-tax Officer in any case may allow, all the particulars required under the prescribed form of return of total income in the same manner as he would have furnished a return under sub-section (1) had his income exceeded the maximum amount not liable to income-tax in his case, and all the provisions of this Act shall apply as if it were a return under sub-section (1). "

Interpreting that section, it was held (at page 529): " The Income-tax Officer could not have ignored the return and had to determine those losses. Section 24(2) confers the benefit of losses being set off and carried forward and there is no provision in section 22 under which losses have to be determined for the purpose of section 24(2). The question which immediately arises is, whether section 22(2A) places any limitation on that right. This sub-section which has been reproduced before simply says that in order to get the benefit of section 24(2) the assessee must submit his loss return within the time specified by section 22(1). That provision must be read with section 22(3) for the purpose of determining the time within which a return has to be submitted. It can well be said that section 22(3) is merely a proviso to section 22(1). Thus, a return submitted at any time before the assessment is made is a valid return. In considering whether a return made is within time sub-section (1) of section 22 must be read along with sub-section (3) of that section. A return whether it is a return of income, profits or gains or of loss must be considered as having been made within the time prescribed if it is made within the time specified in section 22(3). In other words, if section 22(3) is complied with, section 22(1) also must be held to have been complied with. If compliance has been made with the latter provision the requirements of section 22(2A) would stand satisfied."

It would be relevant to read here section 80 of the Act which deals with " submission of return for losses":

"Section 80. Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed within the time allowed under sub-section (1) of section 139 or within such further time as may be allowed by the Income-tax Officer, shall be carried forward and set off under sub-section (1) of section 72 or subsection (2) of section 73 or sub-section (1) or sub-section (3) of section 74 or subsection (3) of section 74A. "

This section provides that a loss which has not been determined in pursuance of a return filed within the time allowed under sub-section (1) of section 139 or within such further time as may be allowed by the Income-tax Officer, should not be carried forward and set off under section 72, 73, 74 or 74A. It may also be noted that section 80 of the Act begins with a non obstante clause and gives overriding effect to the provisions of section 80 over the other provisions of the Chapter in which it is placed. Section 80 occurs in Chapter VI which deals with " Aggregation of income and set off or carry forward of loss ". Further, there is no provision in sub-section (4) analogous to that contained in sub-section (3) directing that the provision of the Act shall apply as if it were a return under sub-section (1). Therefore, from a combined reading of sub-section (4) of section 139 and section 80 of the Act, it follows that, unless the return is filed within the time allowed under sub-section (1) of section 139 or within such further time as may be allowed by the Income-tax Officer, the loss cannot be determined, much less can it be carried forward and set off under the abovesaid provisions. For the above reasons, the judgment of the Supreme Court in CIT v. Kulu Valley Transport Co. P. Ltd. [1970] 77 ITR 518 does not help the petitioner. It has already been pointed out that the Income-tax Officer did not grant any extension of time and the petitioner did not file the return within the time allowed under sub-section (1) of section 139. Therefore, it follows that even though the return filed by the petitioner is within the time contemplated in sub-section (4) of section 139, it has no right to have the loss determined on the said return and carried forward, to the subsequent assessment years to be set off against the income of those years.

It is then contended by Sri Ratnakar that as application of sub-section (10) retrospectively with effect from April 1, 1986, results in injustice and hardship, it must be held that the section cannot be applied retrospectively. Learned counsel relied on D. Cawasji and Co. v. State of Mysore [1984] 150 ITR 648 (SC) and CIT v. J. H. Gotla [1985] 156 ITR 323 (SC).

In D. Cawasji and Co. v. State of Mysore [1984] 150 ITR 648 (SC), sections 2 and 3 of the Mysore Sales Tax (Amendment) Act, 1969, were questioned. By section 2 of the said Act levy of sales tax at the rate of 45 per cent. with retrospective effect from April 1, 1966, was imposed. It appears that there was a binding judgment of the High Court between the parties declaring that the levy of sales tax and excise duty, education cess and health cess was bad. By section 2 of the impugned Act, the rate of tax was enhanced from 6 1/2 per cent. to 45 per cent. with retrospective effect to avoid the liability of refunding the excess amount of sales tax which became payable pursuant to the said judgment. By section 3, the judgment and order of the High Court in the earlier writ petition was sought to be nullified. The Mysore High Court held that the impugned provisions were valid. On appeal, the Supreme Court held that, as a result of the judgment of the High Court declaring the levy illegal, the State became obliged to refund the excess amount wrongfully and illegally collected by virtue of the specific direction to that effect in the earlier judgment, that the object of enacting the amended provision is to nullify the effect of the judgment, which became conclusive and binding on the parties to enable the State Government to retain the amount wrongfully and illegally collected as sales tax and this object has been sought to be achieved by the impugned amendment which does not even purport or seek to remedy or remove the defect and lacuna but merely raises the rate of duty from 6 1/2 per cent. to 45 per cent. and further proceeded to nullify the judgment and order of the High Court, and, therefore, the enhancement of the rate of duty from 6 1/ 2 per cent. to 45 per cent. with retrospective effect is, in the facts and circumstances of the case, clearly arbitrary and unreasonable. In our view, the ratio of this judgment has no application to the facts of the present case.

In CIT v. J. H. Gotla [1985] 156 ITR 323 (SC),the assessee was carrying on different businesses including running of an oil mill. He gifted away a solvent extraction plant of the oil machinery to his wife and three minor children who constituted a firm with third persons. The assessee incurred losses in his individual business in earlier years which were being carried forward from year to year up to the assessment year 1958-59. The share income of the wife and the minor children in the firm was included in the total income of the assessee under the Indian Income-tax Act, 1922, for the assessment years 1959-60, 1960-61 and 1961-62. The question which fell for consideration of the Supreme Court was whether the assessee was entitled under section 24(2) of the Indian Income-tax Act, 1922, to set off the losses which were incurred in his individual business in earlier years and brought forward, against the share income of his wife and minor children. As a fact, it was found that, in those years, the assessee continued to carry on the other businesses. The High Court held that he was entitled to set off the loss under section 24(2). This view was affirmed by the Supreme Court holding that the share income has to be regarded as business income derived from business carried on by the respondent. The court held that, where the plain and literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational result. Sabyasachi Mukharji J. (as he then was) speaking for the court observed (headnote):

"Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction."

Section 12 of the Amendment Act which amended section 139 in so far as it is relevant for our purpose reads as follows :

" 12. Amendment of section 139. - In section 139 of the Income-tax Act . . . . . .

(b) after sub-section (9), the following sub-section shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 1986, namely:-"

From a plain reading of the above section, it is abundantly clear that the newly inserted section was brought into force with effect from April 1, 1986. There is no ambiguity in the said section and the intention of the Legislature is very clear. Further, it has already been held above that the said provision does not take away any right much less fundamental right of the petitioner. The mere fact that a provision of a statute having retrospective operation results in hardship to a citizen is no ground to declare that it should not be given retrospective effect which would run counter to the intention of Parliament.

For the above reasons, we cannot accept the contention of learned counsel. It is lastly contended that the rejection of the application for extension of time by the Income-tax Officer may be held to be illegal and arbitrary and as the petitioner had very good and sufficient reasons, it might be deemed that the petitioner was granted time by the Income-tax Officer till September 30, 1986, and thus its case comes within the ambit of subsection (3) of section 139 and, for that reason, sub-section (10) of section 139 in so far as it gives effect to the said, provision retrospectively with effect from April 1, 1986, may be held illegal and arbitrary. Inasmuch as the correctness of the order passed by the Income-tax Officer rejecting the application of the petitioner for granting extension of time till September 30, 1986, is not questioned in this writ petition, we decline to consider the validity of the said order. Even if the order is said to be bad, the petitioner does not get automatic extension till September 30, 1986, as prayed for by him. This contention is, therefore, rejected.

For the above reasons, the writ petition fails and it is accordingly dismissed ; but having regard to the circumstances of the case, we make no order as to costs.

 

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