1997-VIL-110-ITAT-MUM
Income Tax Appellate Tribunal MUMBAI
IT APPEAL NO. 1948 (BOM.) OF 1992
Date: 30.09.1997
MAFATLAL APPAREL MFG. CO. LTD.
Vs
DEPUTY COMMISSIONER OF INCOME
BENCH
R.P. GARG, ACCOUNTANT MEMBER AND M.A. BAKSHI, JUDICIAL MEMBER
JUDGMENT
R. P. GARG, A.M. :
This is an appeal by the assessee against the order of the CIT(A) dt. 21st January, 1992 for the asst. yr. 1989-90.
2. The only dispute in this appeal is for the additional tax levied under s. 143(1A) of the Act in respect of addition of cash compensatory support (CCS) to the income of the assessee made in the intimation issued under s. 143(1)(a) of the Act.
3. In the note attached to the computation of income, the assessee stated that it received CCS of Rs. 41,83,875 and claimed the same to be capital receipt not liable to tax. It was based on the Special Bench decision of the Tribunal in the case of Gedore Tools (India) (P) Ltd. vs. IAC (1988) 31 TTJ (Del) (SB) 260 : (1988) 25 ITD 193 (Del) (SB). The return was filed on 28th December, 1989.
4. The Finance Bill, 1990, was introduced in the Parliament on 19th March, 1990, making the CCS taxable as revenue income with retrospective effect. It became an Act on the assent given by the President of India on 31st May, 1990.
5. The AO took up the return on 19th July, 1990 and proceeding on the basis of the retrospective amendment brought in by the Finance Act, 1990, added the CCS received to the income of the assessee and sent an intimation. As it was of loss, no tax or additional tax was levied. However, the AO levied additional tax by invoking the provisions of s. 154 of the Act on 10th August, 1990. It was because the loss returned by the assessee was reduced consequent to adjustment on account of CCS. The assessee filed an appeal which was dismissed by the CIT(A) as in his opinion the provisions of the retrospective amendment by Finance Act of 1990 were clear to make CCS taxable as revenue income.
6. We have heard the parties and considered their rival submissions. In our opinion, it was neither a case of prima facie adjustment nor levy of additional tax. Sec. 143(1)(a) reads as under :
"143(1)(a) Where a return has been made under s. 139, or in response to a notice under sub-s. (1) of s. 142 :
(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-s. (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under s. 156 and all the provisions of this Act shall apply accordingly; and
(ii) if any refund is due on the basis of such return, it shall be granted to the assessee :
Provided that in computing the tax or interest payable by, or refundable to, the assessee, the following adjustments shall be made in the income or loss declared in the return, namely :
(i) any arithmetical errors in the return, accounts or documents accompanying it shall be rectified;
(ii) any loss carried forward, deduction, allowance or relief, which, on the basis of the information available in such return, accounts or documents, is prima facie admissible but which is not claimed in the return, shall be allowed;
(iii) any loss carried forward, deduction, allowance or relief claimed in the return, which, on the basis of the information available in such return, accounts or documents, is prima facie inadmissible, shall be disallowed :
Provided further that where adjustments are made under the first proviso, an intimation shall be sent to the assessee, notwithstanding that no tax or interest is found due from him after making the said adjustments :"
On a bare reading of this provision, it is clear that the intimation is to be sent primarily on the basis of the income returned by the assessee. The variations in the returned income can be made by the AO as per the provisions contained in cls. (i), (ii) and (iii) of the proviso to s. 143(1)(a) of the Act. Clause (i) deals with arithmetical errors and the present case is not one of that type. Clause (ii) deals with the allowance of claims of carried forward loss, deduction, allowance or relief, which are not claimed in the return, but prima facie admissible to the assessee. The present is not a case of this nature either. Clause (iii) of the proviso provides for the adjustment by way of disallowances of assessees claim for carry forward of any loss, deduction, allowance or relief, which, on the basis of the information available in the return, accounts or documents accompanying the return are prima facie inadmissible. This is the clause in which the present case falls. It is true that when the assessee claimed CCS as capital receipt, the matter was not free from doubt. There was a Special Bench decision of the Tribunal in the case of Gedore Tools (India) (P) Ltd. vs. IAC (supra) in favour of the assessee and another decision of the Tribunal in the case of Reliance International Co-operative, which followed the Calcutta High Court decision in Jeewanlal (1929) Ltd. vs. CIT (1983) 142 ITR 448 (Cal), is in favour of the Revenue. But in view of the retrospective amendment the law is to be assumed to be in force when the assessee filed the return and on the date from which it is given effect to. In this connection, the Supreme Court decision in the case of M. K. Venkatachalam, ITO & Anr. vs. Bombay Dyeing & Manufacturing Co. Ltd. (1958) 34 ITR 143 (SC) may be referred to wherein the rectification of the order pursuant to the retrospective amendment was held to be valid. Their Lordships of the Supreme Court observed that prima facie, it may appear somewhat strange that an order which was good and valid when it was made should be treated as patently invalid and wrong by virtue of the retrospective operation of the Amendment Act. But such a result is necessarily involved in the legal fiction about the retrospective operation of the Amendment Act. Tax payable, if any, by the assessee is to be increased under s. 143(1)(a) due to increase in its income by such an adjustment. In this case, no tax is payable on the basis of either the income returned or the income as adjusted by addition under cl. (iii) of the proviso, both being figures of loss.
7. Sec. 143(1A) read with Explanation thereunder as amended by the Finance Act, 1993 with retrospective effect, provides for the charge of additional tax at the rate of 20 per cent. on the tax payable on the amount of loss reduced, as if the reduced loss was the assessees total income. No discretion seems to have been left to the AO to levy or not to levy additional tax. He has to levy it if the total income exceeded the returned income or the loss computed is reduced to a figure lower than disclosed in the return. This is what is apparent from the bare reading of the section, be that reduction is the result of retrospective amendment or otherwise.
8. The aforesaid interpretation, however, gives an absurd result which could not have been intended by the legislature. It gives an artificial result and takes one to impossibility, inasmuch as the assessee has to pay additional tax for no fault of his but because of the retrospective amendment brought in by the legislation. To obviate such a situation we find that the Calcutta High Court in the case of Modern Fibotex India Ltd. & Anr. vs. Dy. CIT & Ors. (1995) 212 ITR 476 (Cal) read two limitations on the power of the AO under s. 143(1)(a) to make an adjustment. The first limitation, the Court found, is prescribed in the proviso itself. The prima facie adjustment contemplated is with regard to the claim of carried forward loss, deduction, allowance or relief. The Court noted the deductions which are dealt with in Chapter VI, ss. 30, 31 et sequitur. The word allowance has been used interchangeably with the word deduction and is referred to in s. 33A and sections following. Chapter VIII, IX and XVIII deal with relief. The Revenues claim in that case was the addition of CCS which fell within the category of loss carried forward or relief. The Court left this question open and held suffice it to say that the point raised is a debatable one and not one which should have been decided prima facie or summarily by the AO in exercise of powers under s. 143(1)(a) of the Act. The Bombay High Court, however, answered this question in the case of Adamas Gem Industries Ltd. & Anr. vs. Smt. Neela Krishnan, Asstt. CIT & Anr. (1993) 203 ITR 737 (Bom). In this case the adjustment sought was the receipt of Rs. 2.25 lakhs to the income of the assessee, the amount received as compensation for delay in completion of sale. The Court held that the adjustment did not fall within the parameters of the proviso. CCS is income and its non-disclosure in the return, therefore, would not invite adjustment under s. 143(1)(a) of the Act.
9. The second limitation, the Calcutta High Court read was the applicability of the law prevailing at the time when the return was filed. The Court held that it follows first from the nature of the obligation to which an assessee is subjected in filing his return and the second from the object to be achieved by the introduction of s. 143(1A) and s. 143(1)(a). The obligation, the Court held, is to file a correct income within the prescribed time. When the assessee filed the return it could not be incorrect in view of the decision of the Special Bench in the case of Gedore Tools (India) (P) Ltd. (supra). It became incorrect when Finance Act 1990, introduced retrospective amendment making cash compensatory support taxable. Therefore, the Court held :
"An assessee cannot be imputed with clairvoyance. When the return was filed, the assessee could not possibly have known that the decision on the basis of which cash compensatory support had been claimed as not amounting to the assessees income ceased to be operative by reasons of retrospective legislation."
10. The object, the Court stated, as appeared to be from the Circulars No. 549 and 581 is to put the assessee on guard against filing incorrect returns. The Allahabad High Court in Indo Gulf Fertilisers & Chemicals Corpn. Ltd. vs. Union of India (1992) 195 ITR 485 (All) held the additional tax to be a charge by way of penalty, but the Calcutta High Court, without referring to this aspect, held as under :
"Without going into the question as to whether the provisions are penal in nature, but keeping in mind the consequences of an adjustment made and the insistence upon the assessee filing a correct return, it would follow that the date for judging the question of adjustment must be the actual date of the return in the light of the law then prevailing. To hold otherwise, manifestly shocks ones sense of justice that an act, correct at the time of doing it, should become incorrect by some new enactment (see Midland Railway Company vs. Pyre (1861) 142 ER 619. The injustice in my view is more shocking in this case having regard to the fact that the assessee had itself, in its return, drawn the attention of the income-tax authorities to the basis upon which the cash compensatory support had not been included as income and had clearly offered to include the same in any assessment if the basis is shown to exist.
Additionally, the change in the law by amendment of s. 28 took place several months after the return was filed by the assessee. This Court is not determining the validity of the amendment of s. 28, but is merely determining the scope of the power under s. 143(1)(a). The assessees return could have been taken up by the AO under s. 143 prior to the amendment. In that event, no adjustment would have been made and no intimation would have been sent. An assessees liability cannot be made to depend upon such a fortuitous circumstance.
To sum up : the obligation on the assessees part to file a correct return corresponds with the power of the AO under s. 143(1)(a) to determine the correctness of the return as and when filed."
11. It is trite law that the legislature cannot provide for impossibility. In Asstt. CIT vs. Jindal Irrigation Systems Ltd. (1996) 56 ITD 164 (Hyd) dealing with a somewhat similar situation, the Tribunal observed :
"Lex non Cogit ad impossibilia" is the principle which is fully applicable in this case. This means that the law does not compel a man to do that which he cannot possibly perform ......
6. When the law creates a duty or charge and the party is disabled to perform it, without there being any default on his part, and there is no remedy for him, the law will in general excuse him. When the obligation is one implied by law, impossibility of performance is a good excuse, say, Impotentia Excusat Legem.
7. Even under the Contract Act, dealing with private rights and obligations of a party to the agreement, the contract is deemed to be void on account of impossibility of performance (s. 56). The law regards the order and course of nature and will not force a man to demand that which he cannot recover. The law will not itself attempt to do an act which would be vain Lex nil frustra facit nor enforce on which would be frivolous - Lex neminem Cogit ad vana seu inutilia - the law will not force anyone to do a thing vain and fruitless."
12. In these circumstances, we are of the opinion that though because of the retrospective amendment an adjustment can be made in assessment, no adjustment can be made under s. 143(1)(a) nor the rectification can be made to the intimation already sent in such a case. If the AO wants to add this amount to the assessees income, he should proceed under s. 143(2) or 147 as the case may be. The assessee consequently cannot be burdened with the liability of additional tax under s. 143(1A) for no fault of it, the levy being penal and akin to the levy of penalty. We, therefore, delete the levy of additional tax and allow the assessees appeal to this extent. The appeal is allowed pro tanto.
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