Appeal No 319 of 1958
Appeal from the judgment and order dated September 5 1956 of the Bombay High Court in Income tax Reference No 31 of 1956
H N Sanyal Additional Solicitor General of India K N Rajagopal Sastri and D Gupta for the appellant
N A Palkhivala section N Andley J B Dadachanji and Rameshwar Nath for the respondents
N A Palkhivala section section Shukla and Mrs Eluri Udayaratnam for the intervener The Punjab National Bank Ltd 128 990 1960
May 6
The Judgment of section K Das and JL Kapur JJ was delivered by Kapur J Hidayatullah J delivered a separate Judgment
KAPUR J This is an appeal against the judgment and order of the High Court of Bombay passed in Income Tax Reference No 31 of 1956
The appellant is the Commissioner of Income tax and the respondent is a firm carrying on business in Bombay and the question for decision arises under the Business Profits Tax Act Act 21 of 1947 hereinafter referred to as the Act
The assessment relates to the year of assessment 1949 50 and the chargeable accounting period was from November 13 1947 to October 31 1948
On January 12 1953 the lncome tax Officer issued a notice on the respondent under section 111 of the Act in respect of the above mentioned chargeable accounting period which was served on the respondent on January 21 1953
The respondent filed a return under protest
The assessment was completed by the Income tax Officer on November 30 1953
Against this order the respondent took an appeal to the Appellate Assistant Commissioner on the ground that the respondent was not liable to Business Profits Tax because it was beyond the period of four years limitation under section 14 of the Act
This plea was upheld by the Appellate Assistant Commis sioner
The Income tax Officer then appealed to the Appellate Tribunal and it confirmed the order of the Appellate Assistant Commissioner
At the instance of the appellant a case was stated to the High Court of Bombay on the following two questions of law  1  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 12 1 1953 in respect of the chargeable accounting period 13 11 1947 to 31 10 1948 without having recourse to Section 14 of the Business Profits Tax Act  2 If the answer to Question No 1 is in the negative whether the B P T assessment could be considered to have been validly made   991 The High Court modified the first question by deleting the words without having recourse to Section 14 of the Business Profits Tax Act  and answered both the questions in the negative
The Income tax Appellate Tribunal had held that as under section 14 of the Act the period of limitation commenced from the end of the chargeable accounting period in question the notice under section 11 1 had to be issued before that period
The High Court did not accept this view
It held that both sections 11 and 14 had to be read together and the mention of four years in section 14 was an important indication of the period of limitation in regard to the issue of notice under section 11 also and further if profits which escaped assessment as in the present case could only be taxed within four years of the end of the chargeable accounting period because of section 14 of the Act then inferentially the escape of assessment must be at sometime anterior to the period mentioned in section 14 and as on the facts of the present case the notice had been issued four years after the close of the chargeable accounting period the notice under section 11 wag not valid
Against this order the appellant has come in appeal to this Court on a certificate of the High Court
It is submitted by the appellant that though sections 11 and 14 may have to be read together they apply to different sets of circumstances section 11 applies to a case where the Income tax Officer requires any person whom he believes to be engaged in any business to which the Act applies or to have been so engaged during any chargeable accounting period and calls upon him to furnish a return with respect to such chargeable accounting period and section 14 applies to a case where in consequence of definite information possessed by him the Income tax Officer discovers in regard to any chargeable accounting period that the profits of any business have escaped assessment
In other words section 11 applies to original assessments after the first notice calling upon an assessee to make a return in regard to the profits of any chargeable accounting period and section 14 applies where such notice was issued and it either ended in no assessment at all or there was under assessment 992 etc
According to the argument of the appellant thereforethere is no period of limitation prescribed by the Act for the first notice to furnish a return in regard to any chargeable accounting period but if such notice was given and a return was made and for any reason whatsoever the profits were not assessed or were under assessed etc then section 14 comes into operation and notice has to be served within four years of the end of the chargeable accounting period in question
The provisions of the Act which arise for consideration are sections 2 4 5 11 and 14
Section 2 is the definition section section 4 the charging section and section 5 deals with the applicability of the Act
Section 11 provides for the  Issue of notice for assessment and section 14 is headed  profits escaping assessment Section 2 2 defines accounting period and section 24 chargeable accounting period
Section 4 provides that in respect of any business to which the Act applies there shall be charged levied and paid on the amount of taxable profit during any chargeable accounting period a tax equal to sixteen and twothird percent of the taxable profits which in later years was fixed at a lower figure by the Finance Acts of 1948 and 1949
Under section 5 the Act applies to every business of which any part of the profits made during the chargeable accounting period is chargeable to income tax under section 4 1 b i and ii or subcl
c of that sub section
Sections 111 and 14 of the Act may now be quoted  section 111
 The Income tax Officer may for the purposes of this Act require any person whom he believes to be enaged in any business to which this Act applies or to have been so engaged during any chargeable accounting period or to be otherwise liable to pay business profits tax to furnish within such period not being less than forty five days from the date of the service of the notice as may be specified in the notice a return in the prescribed form and verified in the prescribed manner setting forth along with such other particulars as may be provided for in the notice with respect to any chargeable accounting period specified in the notice 993 the profits taxable profits of the business or the amount of deficiency if any available for relief under section 6 section 14
 If in consequence of definite information which has come into his possession the Income tax Officer discovers that profits of any chargeable accounting period chargeable to business profits tax have escaped assessment or have been underassessed or have been the subject of excessive relief he may at any time within four years of the end of the chargeable accounting period in question serve on the person liable to such tax a notice containing all or any of the requirements which may be included in a notice under section 11 and may proceed to assess or reassess the amount of such profits liable to business profits tax and the provisions of this Act shall so far as may be apply as if the notice were a notice issued under that section 
These sections lead to the conclusion that every business to which the Act applies is liable to the risk of being assessed to Business Profits Tax and it is well settled that income escapes assessment when the process of assessment has not been initiated as also in a case where it has resulted in no assessment after completion of the process of assessment
In our opinion the High Court was right when it held that sections 11 and 14 of the Act have to be read together
The Act and the Indian Income tax Act are both taxing statutes operating on the same source
 ie profits of business which is similarly defined in the two statutes
If the provisions relating to escaping of assessment in the two statutes ie in section 14 of the former and in section 341 of the latter as it existed after the amendment of 1939 employ the same language they must receive the same interpretation and not be construed differently
Section 341 of the Indian Income tax Act as amended in 1939 provided section 341
If in consequence of definite information which has come into his possession the Income tax Officer discovers that income profits or gains chargeable to income tax have escaped assessment in any year or have been under assessed or have 994 been assessed at too low a rate or have been the subject of excessive relief under this Act the Incometax Officer may in any case in which he has reason to believe that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof at any time within eight years and in any other case at any time within four years of the end of that year serve on the person liable to pay tax on such income profits or gains or in the case of a company on the principal officer thereof a notice containing all or any of the requirements which may be included in a notice under sub section 2 of section 22 and may proceed to assess or reassess such income profits or gains and the provisions of this Act shall so far as may be apply accordingly as if the notice were a notice issued under that sub section The words  escaping income  in the Indian Income tax Act were interpreted as being applicable to a case where a person received notice under section 222 of the Income tax Act but the process ended in no assessment as to a case where there was no assessment at all because no notice was issued under section 222 of the Income tax Act in other words it includes cases where the process of assessment did not commence because no notice was given under section 222 of the Income tax Act due to inadvertence oversight negligence or any other cause as to cases where such notice proved abortive or ineffective
Both are cases of escaped assessment Commissioner of Income tax Bombay vs Pirojbai N Contractor 1
In this Court these words were considered and interpreted in Kamal Singh vs Commissioner of Income tax 2 
They were interpreted to comprise a case of no notice being given for the assessment and notice being given and resulting in no assessment
Gajendragadkar J observed We see no justification for holding that cases of income escaping assessment must always be cases where income has not been assessed owing to inadvertence or oversight or owing to the fact that no return has been submitted
In our opinion even in a case where a return has been submitted 1 2 1959 Supp 1 SCR 10 18 19 995 if the Income tax Officer erroneously fails to tax a part of assessable income it is a case where the said part of the income has escaped assessment
The appellant s attempt to put a very narrow and artificial limitation on the meaning of the word  escape  in section 341b cannot therefore succeed 
This passage was quoted with approval in another case by this Court in Maharajadhiraj Sir Kameshwar Singh vs State of Bihar 1 per Hidayatullah J
Chatturam Horilram Ltd vs Commissioner of Income tax2 was a somewhat different case
There assessment proceedings had been taken but had failed to result in a valid assessment owing to some lacuna other than that attributable to the Assessing Authorities and it was hold to be a case of chargeable income escaping assessment and not a case of mere nonassessment of income tax
All these cases show that the words  escaping assessment  apply equally to cases where a notice was received by the assessee but resulted in no assessment at all and to cases where due to any reason no notice was issued to the assessee and therefore there was no assessment of his income
It is also clear from the language of section 14 of the Act that when a notice is issued under that section all the requirements of the notice under section 11 apply and the Income tax Officer has to proceed in the manner as if the notice was issued under section 11
Therefore any advantage or relief which was available to the assessee under section II as to allowable deductions deficiency etc would be equally available if the notice is issued under section 14
The legislature has adopted the language of section 341 of the Income tax Act in section 14 of the Act and it must therefore be considered to have adopted the construction of that section applied by the courts
Secondly this Court has construed the words  escaping assessment  as used in section 341 of the Income tax Act
The same words in the same context as employed in section 14 of the Act must have the same meaning
It was submitted that in the present case a different meaning 1  2  996 should be given because although in section 34 of the Indian Income tax Act and section 14 of the Act the word
  escaping assessment  are used the language of section 111 of the Act and of section 222 of the Indian Incometax Act is different in
so far in the former the notice requires an assessee to furnish a return of the income of the previous year and in the latter he has to furnish the particulars with respect to any chargeable accounting period of the profits of the business
It becomes necessary therefore to examine the provisions of the Act as to the chargeable accounting periods and other provisions relevant thereto
In section 22 of the Act  Accounting period  in relation to any business means any period which is or has been determined as the previous year for the purpose of the Indian Income tax Act
Under section 24 of the Act Chargeable accounting period  means  a  any accounting period falling wholly within the term beginning on the first day of April 1946 and ending on the thirty first day of March 1947 b where any accounting period falls partly within and partly without the said term such part of that accounting period as falls within the said term 
According to this definition therefore where the previous year was the financial year 1946 47 then the accounting period and the chargeable accounting period would be coincident ie they would both be 1946 47 but if the previous year was the calendar year or the Diwali year the accounting periods of nine months in the former case ie April 1 1946 to December 31 1946 and 7 months in the latter ie April 1 1946 to November 1 1946 would be the chargeable accounting periods for the purposes of the Act
The extent of the periods will vary according to the determination of the previous year under the Incometax Act
It might be a full year or less which appears to be the reason for adopting the nomenclature which has been adopted in the Act instead of the previous year
It would be incongruous to call a period of less than a year as the previous year
For the chargeable accounting periods mentioned above the Business Profits Tax would be charged levied and paid in the 997 financial year 1947 48 at the rate mentioned in section 4 of the Act on every business falling under section 5
But for all these periods the assessment year would be the financial year 1947 48
Keeping this in view we may now see what changes were made by the Finance Act of 1948
By that Act the Act was continued for another one year and for the figure  1947  in the definition of chargeable accounting period in section 24a the figure  1948  was substituted and the following proviso was added  Provided that where an accounting period falls partly before and partly after the end of March 1947 so much of that accounting period as falls before and so much of that accounting period as falls after the end of March 1947 shall be deemed each to be a separate chargeable accounting period 
By this proviso the accounting period or the previous year was split up in cases where it was not the preceding financial year or 1947 48
Thus the calendar year 1947 became two chargeable accounting periods of 3 months and 9 months ie from January 1 1947 to March 31 1947 and April 1 1947 to December 31 1947 and the same would apply to accounting period from Diwali to Diwali ie 5 months and 7 months
In effect the whole year s profits thus became chargeable to Business Profits Tax instead of only of a part of the year as was the case for the financial year 1947 48
Other changes made by the Finance Act of 1948 were in section 4 where under section 10 of the Finance Act the rate of tax for the chargeable accounting
period up to the end of March 1947 remained at 16 23 per cent
but for the chargeable accounting period after that date was to be fixed by the Annual Finance Act and by section 111 of that Act the rate was fixed at ten per cent
Thus Business Profits Tax rates also were to be fixed by the Annual Finance Act as were the Income tax rates
Then came the Finance Act of 1949 which continued the Act for another year and under section 4 fixed the rate chargeable in respect of any chargeable accounting period after March 31 1948
The Finance Act of 1950 did not continue the Act and it thus came to 129 998 an end except for liabilities which had already arisen or accrued under the Act
As the tax under the Act is charged levied and paid on the taxable profits of a chargeable accounting period but assessment is in respect of the financial year in which the Act operates it is not an unreasonable inference that notice for the chargeable accounting period must issue in the financial year following that period
No difficulty would arise in regard to accounting periods which coincide with previous years ie 1946 47 1947 48 and 1945 49
For these years the notice will issue in the following chargeable accounting period which again will be the financial year in which the Act would be operative
But the question is how the proviso to section 24 added by the Finance Act of 1948 would affect this rule
Taking a calendar year 1946 as the accounting period for the financial year 1947 48 the chargeable accounting period would be the nine months period from April 1 1946 to December 31 1946 and notice under section 111 of the Act must issue in the financial year because the tax is leviable and assessment is made for the year beginning April 1 1947 when the Act came into force and remained operative during the year 1947 48
After the Finance Act of 1948 the accounting year if it was a calendar year became divided into two parts and both were assessable in the assessment year beginning with April 1 1948 and therefore notice had to be given in the financial year 1948 49
Similarly in the financial year 1949 50 notice would have to be given in that year for the preceding chargeable accounting period
In this view of the matter the contention that there is no provision in section 111 of the Act as to the chargeable accounting period as there is for the previous year in section 222 of the Income tax Act is not well founded
That the notion of the previous year or the accounting period is as much applicable to the Act as to the Indian Income tax Act is shown by reference to Computation of Profits Rules in the Schedule to the Act
There the computation is related to the accounting periods
The previous year is shown applicable by reference to the Rules under the Act 999 by which some of the Rules of the Income tax Act are made applicable to the Act and some of the sections of that Act are made applicable by section 19 and by the Rules under the Act
Amongst the Rules applicable is r 8 which inter alia related to allowances under section 102vi of the Indian Income tax Act
The first and the second provisos to this rule are as follows   Provided that if the buildings machinery plant or furniture have been used by the assessee in his business for not less than two months during the previous year the percentage shall be increased proportionately according to the number of complete months of user by the assessee  Provided further that in the case of a seasonal factory worked by the assessee during all the working seasons of the previous year the percentage shall be increased as if the buildings machinery plant or furniture had been in use throughout the period the assessee was the owner thereof during the previous year 
Both these provisos use the word previous year which is same as the accounting year under the Act
By r 4A of the Rules made under the Act certain sections of the Indian Income tax Act have been adapted with modifications therein mentioned
Of those section 50 of the Income tax Act is one
In the Act it has been substituted by the following  No claim to any refund of tax under the Act shall be allowed unless it is made within four years from the last day of the financial year commencing next after the expiry of the accounting period which constitutes or includes the chargeable accounting period in respect of which the claim to such refund arises 
All these sections show not only that the two statutes ie the Act and the Indian Income tax Act have to be read together but also that the notion of the previous year has been inducted into the Act
The modified section 50 as introduced into the Act by the rules means this that the refund if any can only be allowed within four years of the financial year which commences after the expiry of the accounting 1000 period which itself constitutes the chargeable accounting period or includes in it the chargeable accounting period in respect of which the refund is claimed
If the contention of the appellant is correct then this section will be wholly otiose where the assessment is levied after say 10 years from the end of the chargeable accounting period because by no method of calculation will a refund of tax in that circumstance be claimable under section 50
This furnishes a key to when a notice under section 111 has to be given
It must be given within the financial year which commences next after the expire of the accounting period or the previous year which is by itself or includes the charge able accounting period in question
Section 48 of the Income tax Act as amended and applied to the Act does not affect the operation of section 50 because the two sections have to be read together and the assessee must apply for the refund within the period specified by section 50 Adam Haji Dawood  Co Ltd vs Commissioner of Income tax Burma 1
The language of section 14 and particularly the words may proceed to assess or reassess the amount of such profits to Business Profits Tax  support the contention of the respondent that it applies to cases of no assessment due to notice not being given as to cases of no assessment after notice was given and proceedings proved ineffective
The words  assess  and reassess do not mean the same thing and signify two different cases
The former applies to cases where there was no assessment to tax due to notice not being given and the process has to commence with the issuing of such notice and the latter to cases where the assessment process is recommenced by issuing a second notice the previous notice having proved abortive or resulting in under assessment etc
Construing in this manner effect is given to the words  profits of any chargeable accounting period   have escaped assessment  and it also avoids the anomaly that some cases where there was no assessment can be dealt with under one section with a time limit as under section 14 but other equally clear cases of non assessment are dealt with under section 11 1 19364 I TR 100 Rang
1001 without there being any limitation of time
If the contention of the appellant is accepted then it would come to this that it would depend upon the Incometax Officer as to which of the two sections he uses for the purposes of assessment and would lead to this absurdity that in a case of definite information of profits having escaped assessment there will be a limitation of four years and in cases where there is no such information but only belief there will be no such limitation
If the words  profits escaping assessment  are applicable to original assessments ie where the process of assessment did not commence as also to assessments where the process of assessment was commenced but proved wholly abortive or partially so then section 14 would apply to both such cases
Thus construed section II would apply to normal original assessments and section 14 to profits escaping assessment as construed above whether the assessment is an original assessment or is a re assessment
In determining the scope of section 14 of the Act reference may be made to another statute which is relevant for the purpose ie the Excess Profits Tax Act Act XV of 1940 sections 13 and 15 of which are identical in language with sections 11 and 14 of the Act
Section 13 deals with the issue of a notice for assessment and section 15 with profits escaping assessment
Before the Income Tax and Excess Profits Tax Amendment Act 1947 Act 22 of 1947 there was a 5 years  period of limitation prescribed in section 15 in the following terms  within five years of the end of the chargeable accounting period in question 
By the aforesaid amendment these words were deleted
The Act being Act 21 of 1947 as well as the Amendment Act above referred to were enacted about the same time one after the other
The legislature thought it necessary to remove the period of limitation and thereby made profits escaping assessment liable to taxation under the Excess Profits Tax Act without any period of limitation but in the Act the legislature thought it expedient to prescribe the period of limitation of four years in section 14
It cannot be said that this was 1002 without any purpose and the argument that prescribing the period of limitation in section 14 of the Act was deliberate and was intended to prevent taxing under the Act of profits which had escaped assessment for four years from the end of the chargeable accounting period in question is not without substance
It was argued for the appellant that section 111 construed according to the plain meaning of the words used therein applies to original assessments and section 14 to assessments in which notice was given but due to any cause whatsoever the proceedings resulted in no assessment or in under assessment
He referred to the words  require any person whom he believes to be engaged in any business or to have been engaged during any chargeable accounting period or to be otherwise liable  and submitted that these words mean that if an Income tax Officer has such belief in regard to a person who is engaged in any business or was engaged in any business during any chargeable accounting period in question he can issue a notice at any time without limitation of time requiring a return to be filed etc
In support counsel for the appellant relied upon two judgments Gokuldas Ratanji Mandavia vs Commissioner of Income tax 1 which was an appeal from East Africa and Telu Ram Jain  Co vs Commissioner of Income tax 2  a case decided by the Punjab High Court
In the former case a notice was issued to the assessee under section 591 of the East African Income Tax Management Act 1952 which provided The commissioner may by notice in writing require any person to furnish him within a reasonable time not being less than thirty days from the date of service of such notice with a return of income Sections 711 and 72 provided section 711
The commissioner shall proceed to assess every person chargeable with tax as soon as may be after the expiration of the time allowed to such person for the delivery of his return    section 72 Where it appears to the commissioner that any person liable to tax has not been assessed 1 2 1003 person at such amount as according to his judgment ought to have been charged 
The notice requiring the assessee to furnish returns of his income for the years of assessment 1943 53 was issued but no return was filed and assessment was made under section 72 of the East African Act for the years 1943 51
The assessee contended that section 72 did not apply until the machinery under section 71 had been put into operation and that the assessments were ultra vires and void because they were made before the time allowed by section 71
It was held that section 71 applied to all original assessments and s 72 with reopening of cases which had been settled under a normal procedure
Accepting the contention of the assessee Lord Somervell of Harrow observed If the power to make an assessment under section 72 applies to the making of an orginal assessment their Lordships are unable to imply a term restricting it to back cases or making it ultra vires to operate it at any time
One would expect an opportunity to make a return to be a condition precedent to assessment
This is supported by the provisions for personal allowances in Part VI of the Act
If the respondent is right any person can be assessed without having any such opportunity
There would be two concurrent jurisdictions one providing reasonable protection for the taxpayer and the other providing no protection quoad the original assessment apart from a right to appeal
Such a construction seems to their Lordships inconsistent with the general and mandatory provisions of section 71
That section is providing how all original assessments are to be made 
The language of these sections 591 71 and 72 is differs it from that of sections 11 and 14 of the Act
Section 72 was held not applicable because there would be two concurrent jurisdictions one providing reasonable protection for the taxpayer and the other providing no protection which would be contrary to the provisions of section 71
According to the Privy Council it was necessary to restrict the words of section 72 to cases in which the machinery of section 591 having been operated 1004 no assessment resulted
The words of section 14 are entirely different
It applies to cases of profits escaping assessment and the words  escaping assessment  have already been interpreted under section 34 of the Income tax Act and there is no reason why the same words occurring in a statute which is in pair material should be given a different meaning in the two Acts
Further the difficulty which the Privy Council felt in regard to there being two jurisdictions one giving protection to the assessee and the other not giving such protection does not exist in the present case because the process of assessment under section 14 of the Act is exactly the same as it is where notice is given under section 111 of the Act and all the advantages which an assessee would have under section 111 are available to him under section 14
The Punjab case to which our attention has been drawn was a case under the Excess Profits Tax Act and it was held that because of the removal of the limitation clause in section 15 of that Act assessments were not hit by any period of limitation and a further observation not necessary for the decision of the case was made that even otherwise the language of section 13 of that Act was wide and there was no substance in the contention that after the assessment period a notice under section 13 of that Act could not be issued and that the only notice which could be given was one under section 15
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
We accordingly dismiss the appeal with costs
HIDAYATULLAH J The Commissioner of Incometax Bombay has filed this appeal against the judgment and order of the High Court of Bombay dated September 5 1956 with the certificate of the High 1005 Court granted under section 19 of the Business Profits Tax Act 1947 hereinafter called the Act read with section 661 of the Indian Income tax Act 1922
Messrs Narsee Nagsee  Co Bombay hereinafter referred to as the assessee firm are the respondents
The ssessee firm at all material times was doing business  in Bombay
For the chargeable accounting period November 13 1947 to October 31 1948 a notice was issued on January 121953 by the Incometax Officer under section 111 of the Act calling upon the assessee firm to submit its return
This notice was served on the assessee firm on January 21 1953 and it filed a return under protest stating that the notice was barred under section 14 of the Act
It may be men tioned that the assessment for purposes of income tax for the same year was completed on February 17 1953
The objection of the assessee firm was overruled by the Income tax Officer who completed the assessment under section 121 of the Act on November 30 1953
The assessee firm then appealed to the Appellate Assistant Commissioner who upheld the objection that the notice was invalid under section 141 of the Act
On appeal taken by the Commissioner of Income tax Bombay the Appellate Tribunal concurred with the Appellate Assistant Commissioner
At the instance of the Commissioner however the Tribunal stated a case and referred two questions for the decision of the Bombay High Court which were as under  1 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 111 of the Business Profits Tax Act on 12 1 1953 in respect of the chargeable accounting period 13 11 1947 to 31 10 1948 without having recourse to section 14 of the Business Profits Tax Act  2 If the answer to question No 1 is in the negative whether the Business Profits Tax assessment could be considered to have been validly made  The High Court modified the first question by deleting its last 12 words
Both the questions were then answered by the High Court in the negative
The 130 1006 Commissioner of Income tax obtained a certificate from the High Court and filed this appeal
Before dealing with the reasons given by the High Court and the Tribunal and considering arguments urged in this appeal it will be convenient to reproduce sections 111 and 14 of the Act  111
The Income tax Officer may for the purposes of this Act require any person whom he believes to be engaged in any business to which this Act applies or to have been so engaged during any chargeable accounting period or to be otherwise liable to pay business profits tax to furnish within such period not being less than forty five days from the date of the service of the notice as may be specified in the notice a return in the prescribed form and verified in the prescribed manner setting forth along with such other particulars as may be provided for in the notice with respect to any chargeable accounting period specified in the notice the profits the taxable profits of the business or the amount of deficiency if any available for relief under section 6 Provided that the Income tax Officer may in his discretion extend the date for the delivery of the return
If in consequence of definite information which has come into his possession the Income tax Officer discovers that profits of any chargeable accounting period chargeable to business profits tax have escaped assessment or have been under assessed or have been the subject of excessive relief he may at any time within four years of the end of the chargeable accounting period in question serve on the person liable to such tax a notice containing all or any of the requirements which may be included in a notice under section II and may proceed to assess or reassess the amount of such profits liable to business profits tax and the provisions of this Act shall so far as may be apply as if the notice were a notice issued under that section
 The Tribunal construe both these sections together and expressed the opinion that the notice under section 11 in respect of a chargeable accounting period should 1007 issue before the commencement of the next chargeable accounting period and that if the notice was not so issued profits must be considered to have escaped assessment and that action could only be taken under section 14 within four years of the close of the chargeable accounting period in respect of which it was sought to tax the assessee
The Tribunal therefore held that inasmuch as the notice in this case was issued in January 1953 more than four years after October 31 1948 when the chargeable accounting period came to an end the notice and the assessmentwere barred by time
The Tribunal also pointed out that the intention of the legislature could be gathered from the fact that though in section 15 of the Excess Profits Tax Act the limitation of five years was deleted by Act 22 of 1947 a similar amendment was not made in section 14 of the Act which corresponds to section 15 of the Excess Profits Tax Act though the Act was passed at the same time being Act 21 of 1947
Holding therefore that the profits which were not taxed at all and were never brought under assessment must be deemed to have  escaped assessment  because notice under section 11 was not issued in time the Tribunal was of opinion that action could only be taken under section 14 of the Act within the time specified there
The Bombay High Court did not accept that the notice under section 11 had to be given before the end of the chargeable accounting period but held that the two sections must be interpreted together and observed   Inasmuch as section 11 does not indicate any period of time with regard to the issue of a notice would it or would it not be right for us to import into section 11 the consideration which led the Legislature to fix a limitation of time for the purpose of issuing a notice under section 14  If we were not to do that we would arrive at this rather extraordinary conclusion that the Legislature while saving the subject from harassment of proceedings with regard to escaped assessment or under assessment permitted that harassment with regard to the very initiation of the proceedings after the lapse of four years
It is contended that the period of four years mentioned in section 14 supplies an 1008 important indication for what the period of limitation should be with regard to the is tie of a notice under section 11
If income which has escaped assessment can only be taxed within four years by reason of section 14 then it must inferentially follow that income must escape assessment at some point of time anterior to the period of four years mentioned in section 14
On efects of this case the most significant and salient fact is that the notice has been issued four years after the close of the chargeable accounting period and as that notice is beyond the time mentioned in section 14 in our opinion the notice is not a valid notice under section 11 The Commissioner has contended that section 11 deals with the issuance of a notice for the first time before any income has been returned or brought to tax
The notice under section 11 it is submitted next is without any limit of time and a limitation cannot be read into a section when the legislature has not thought it fit to lay it down
According to the Commissioner section 14 deals with  escaped assessment  which under the scheme of the Act must be given a narrow meaning as indicating the escapement of profits from tax either wholly or partly for any reason after the process of assessment has taken place
Section 14 it is argued operates after one set of proceedings for assessment of tax have taken place and applies only where the profits either escape assessment or are under assessed or excessive relief has been granted while section 11 on the other hand applies to all cases where the assessee has not been called upon to file a return or has not filed one himself
As against this the assessee firm adopts the reasons given by the Tribunal and the High Court and adds that whereas under section 14 some definite information must be possessed by the Incometax Officer before he can issue the notice the Incometax Officer has only to entertain a belief that business was carried on in the chargeable accounting period to enable him to serve the notice under section 11
The assessee firm therefore contends that it would be open to the Income tax Officer to ignore section 14 1009 altogether and to issue a notice under section 11 in a case even after the expiry of a considerable time
The Commissioner contends that the liability to pay tax arises under section 4 of the Act and it remains till the liability is discharged by payment of tax and the legislature has therefore advisedly left the power to the Income tax Officer to assess the tax where there has been no proceeding to assess it without imposing any limit as to time
Section 14 on the other hand has been so framed that persons whose profits have been brought to assessment once should not be exposed to a double peril except within the stated period
The two sections must be reconciled
The learned Chief Justice of the Bombay High Court who delivered the judgment of the Bench stated that it was not an easy matter to give a rational meaning to them
He however felt that between the two rival contentions the argument of the assessee firm was the more reasonable and that where two constructions were possible one strict and the other beneficial to the assessee the latter should be preferred if it was equally reasonable
The scheme of the Act in so far as asking for a return is concerned is entirely different from that of the Indian Income tax Act
Under the latter Act a general notice is issued calling upon every assessee whose income exceeds the minimum which is exempt under the Income tax Act to file a return within the period stated in the notice
The Income tax Officer has further power to issue a notice to any individual assessee during any assessment year calling for a return of his income during the previous year
An assessee under the Income tax Act is therefore bound if his income is liable to tax to file a return whether it be in answer to the general notice or to the special notice issued to him
The assessee may even file a return voluntarily before the special notice is issued to him
Even before 1939 though there was no general notice the distinction between the previous year and the assessment year obtained
The notice under section 22 of the Indian Income tax Act must issue before the 1010 close of the assessment year and cannot be issued thereafter
The scheme of the Business Profits Tax Act is different
Business profits follow the assessment of income tax and are payable for any chargeable accounting period in which the assessee having carried on business assessable profits have resulted Under the Act the Income tax Officer if he has reason to believe that the assessee was engaged in any business to which the Act applied or to have been so engaged during any chargeable accounting period or to be otherwise liable to pay business profits tax can call upon the assessee to furnish a return
That is section 11
Then comes section 14 which says that if in consequence of definite information which has come into his possession the Income tax Officer discovers that profits of any chargeable accounting period chargeable to business profits tax have  escaped assessment  he may at any time within four years from the end of the chargeable accounting period in question serve on the person liable to such tax a notice
There is no compulsion to file a return except in answer to a notice issued either under section 11 or section 14
There is no period comparable to the assessment year
Mr Palkhivala attempted to bring in the conception of an  assessment year  into the Act by saying that the next chargeable accounting period could be taken to be the assessment year for the previous chargeable accounting period
When it was pointed out to him that where the chargeable accounting period of a business ended say on March 15 every year the last charge able accounting period would be compressed to 15 days he had no adequate answer
The Tribunal also stated that the chargeable accounting year was also the assessment year 
This cannot be correct because section 111 speaks of the current as well as the back chargeable accounting periods as will be explained in detail later
The question thus is whether a narrow meaning should be given to the words  profits which have escaped assessment  as denoting only those profits which by reason of a prior notice under section 11 were sought to be assessed but had escaped assessment or a wide meaning to include those profits 1011 which were never sought to be assessed or brought under assessment by the issuance of a notice under section 11
The question is primarily one of construction of the two sections of the Act
Before dealing with it is necessary to look at the scheme of some of the basic provisions of the Act
The accounting period under the Act is equated to the previous year of the business for the purposes of the Indian Income tax Act 1922
The tax is laid on the taxable profit s of the chargeable accounting period  which means an accounting period failing wholly within the term beginning on the first day of April 1946 and ending on the thirty first day of March 1949 or where any accounting period falls partly within and partly without the said term such part as falls within the said term
A proviso further says that if the accounting period falls partly before and partly after the end of March 1947 then the period before and the period after shall be deemed to be separate chargeable accounting periods
Then comes section 4 which is the charging sections That section omitting the provisions about exemptions which do not concern us reads   Subject to the provisions of this Act there shall in respect of any business to which this Act applies be charged levied and paid on the amount of the taxable profits during any chargeable accounting period a tax in  his Act referred to as business profits tax  which shall in respect of any chargeable accounting period ending on or before the 31st day of March 1947 be equal to sixteen and two thirds per cent
of the taxable profits and in respect of any chargeable accounting period beginning after that date be equal to such percentage of the taxable profits as may be fixed by the annual Finance Act
Provided   omitted
Section 5 deals with the application of the Act
That section omitting again the provisos that do not affect the present matter provides   This Act shall apply to every business of which any part of the profits made during the chargeable accounting period is chargeable to income tax by 1012 virtue of the provisions of sub clause i or subclause ii of clause b of subsection 1 of section 4 of the Indian Income tax Act 1922 or of clause of that sub section Provided  omitted
It will appear from these sections quoted that the business profits tax comes in the wake of the incometax
That is to say the assessability to profits tax follows the assessability to income tax
The tax is laid on the taxable profits accruing within a stated period which may include not more than four accounting periods corresponding either wholly or partly to the previous year under the Income tax Act
The chargeability to income tax is a condition precedent to the chargeability to profits tax but not every business which pays income tax necessarily pays business profits tax
The Act however does not prescribe a period comparable to the assessment year under the Indian Income tax Act
It does not lay down any term within which the assessment should be completed
The short question thus is whether in section 11 of the Act a limitation corresponding to the limitation contained in section 14 must necessarily be read
It seems to be agreed on all hands and it was not denied at the Bar before us that if section 11 is to be interpreted according to its own terms then no such limitation can be read in it
The Tribunal and the High Court resort to section 14 to do so
It is always a serious matter to read into a section what the legislature has not chosen to put there
As pointed out by Lord Esher M B in Curtis vs Stovin 1  It is no doubt very easy for a judge to say that lie is introducing words into an Act only by way of construing it while be is really making a new Act Such procedure is wholly out of place if the language of the section does not admit of any extension
The question invariably is Dot what the legislature might have said or might be supposed to have intended to say but what it did say
This is more so in an 1 1013 Act which imposes a tax and which cannot be added to or subtracted from except perhaps for the most clear and compelling reasons
Bearing these principles which have received recognition on many an occasion in mind I address myself to the task
Under the scheme of the Act analysed above it is quite clear that the liability to tax depends not on any action to be taken tinder the Act to recover the tax but it attaches itself to the taxable profits when they have been made in any chargeable accounting period
Once this liability attaches it can only be dissolved either by payment of the tax or by the levy becoming impossible due to lapse of stated time
The Commissioner contends that the liability to pay the tax in the case of a business not brought to tax does not cease by reason of any passage of time
It ceases only when by reason of an attempted assessment once the proceedings under section 14 cannot be initiated again after the expiry of four years from the end of any chargeable accounting period
The Commissioner contends that the phrase  profits have escaped assessment in section 14 must be limited to those cases only
For this purpose reliance is placed upon a recent decision of the Privy Council in a case from Africa Gokuldas Ratanji Mandavia vs Commissioner of Incometax 1 which will be referred to in some detail
The Income tax authorities in Nairobi in that case wrote on May 26 1953 asking Mandavia for information and a deposit of pound 2000 and saying As you do not appear at any time to have made a return of total income and claim for allowances I am sending under separate cover forms covering years of assessment 1943 to 1953
These should be completed and submitted to me along with the accounts of your professional activities and of your property dealings as set out in the preceding paragraphs 
Mandavia was at that time in England and wrote on June 4 asking for time till the end of July
On June 15 1953 the Regional Commissioner wrote to inform him that he was proceeding to assess him and impose penalties on the basis of such information as 1 1014 had been submitted
These assessments were made on June 18 but were dated June 26 apparently to give the taxpayer more time in which to pay
Under section 59 of the East African Income Tax Management Act 1952 it was provided  591
The commissioner may by notice in writing require any person to furnish him within a reasonable time not being less than thirty days from the date of service of such notice with a return of income and of such particulars as may be required for the purposes of this Act with respect to the income upon which such person appears to be chargeable Under the third sub section of that section a duty was laid upon every person to give notice to the Commissioner before October 15 in the year following the year of income that he was so chargeable where no notice had been served under sub section
1 and no return had been furnished within nine months of the close of the year of account
Then followed two sections which need to be quoted partly
Section 71 provided inter alia  1
The commissioner shall proceed to assess every person chargeable with tax as soon as may be after the expiration of the time allowed to such person for the delivery of his return
 The section provided by sub section
2 for cases in which a return was made which was a accepted and b not accepted and by sub section
3 for cases where no return was filed
Then followed section 72 which provided leaving out the proviso  Where it appears to the commissioner that any person liable to tax has not been assessed or has been assessed at a less amount than that which ought to have been charged the commissioner may within the year of income or within seven years after the expiration thereof assess such person at such amount or additional amount as according to his judgment ought to have been charged and the provisions of this Act as to notice of assessment appeal and other proceedings under this Act shall apply to such assessment or additional assessment and to the tax charged thereunder
 1015 Now the Commissioner in the cited case justified the assessments under section 72 because it was contended that the assessments were ultra vires and void in that they were made before the  time allowed 
He relied upon the general words of section 72 and submitted that they covered even a case where a person was not assessed whether he had a notice and a time allowed  under sections 59 and 71 or not
The argument on behalf of the taxpayer was that section 72 only dealt with cases where subsequent information led either to an assessment after a prior assessment or to an additional assessment but had no application to cases in which the machinery of section 591 had not been operated
The Privy Council accepted the contention of the taxpayer
It held that before assessments could be made the  time allowed  had to elapse
It however gave a narrow meaning to the words as to assessing for the first time in section 72 as restricted to  cases in which the machinery of section 591 having been operated no assessment has been made 
Their Lordships gave three reasons for this conclusion which may be set out in their own words  If the power to make an assessment under section 72 applies to the making of an original assessment their Lordships are unable to imply a term restricting it to back cases or making it ultra vires to operate it at any time
One would expect an opportunity to make a return to be a condition precedent to assessment
This is supported by the provisions for personal allowances in Part VI of the Act
If the respondent is right any person can be assessed without having any such opportunity
There would be two concurrent jurisdictions one providing reasonable protection for the taxpayer and the other providing no protection quoad the original assessment apart from a right to appeal
Such a construction seems to their Lordships in consistent with the general and mandatory provisions of section 71
That section is providing how all original assessments are to be made
Section 72 deals inter alia with additional assessments with cases in which owing presumably to subsequent information the Revenue desires to 1016 reopen what had apart from section 72 been settled
Having regard to the wording of section 71 it seems to their Lordships necessary to restrict the words as to assessing for the first time in section 72 to cases in which the machinery of section 59 1 having been operated no assessment has been made
So far as the taxpayer is concerned after be bad made his return or had an opportunity of doing so it was settled that be was under no liability to tax for that year
Subsequent information leads the Revenue to reopen the matter and decide that he ought to be assessed
Section 72 is dealing with the reopening of cases which had been settled under the normal procedure
This explains the fact that section 72 contains a prima facie limitation of seven years whereas section 71 contains no limitation
On the respondents  arguments this seems inexplicable
On the other argument it seems reasonable that there should after a certain time be no reopening of what has been settled unless there has been fraud or willful default
The construction also gains support from the words ought to have been charged  when they occur for the second time in section 72
They there apply to  such amount  as well as  such additional amount 
 The case though it is easily distinguishable on the ground that the African Act and the Act are not in pari material shows that by the compulsion of the language employed and the scheme of taxation a restricted meaning may have to be given to certain general words
When such a claim is made only the statute under which the claim is made can be the guide and not another not in pari material
The decision is also distinguishable on the ground that there a notice under section 59 1 was pending and the  time allowed  had not expired
The assessee relies upon a decision of the Bombay High Court in Commissioner of Income tax vs P N Contractor 1 where the previous year ended on March 3l1934
No notice was served on the assessee under s222of the Indian Income tax Act during 1 1017 the year of assessment
Then a notice under section 34 of the Income tax Act was served on June 26 1935
It was held by Beaumont C J and Rangnekar J that section 34 of the Indian Income tax Act was wide enough to include those cases in which there was no notice under section 22 or a first assessment
Beaumont C J dissented from the observations of Sir George Rankin in are Lachhiram Basantlal 1 made obiter that  income cannot be said to have escaped assessment except in the case where an assessment has been made which does not include the income  and observed   Under section 34 what must be escaped is assessment and that means the whole process of assessment which in the case of individuals starts with the service of a notice under section 222
The liability to assessment is a risk to which every person in British India entitled to income is liable and I cannot see why the process of assessment has not been just as much escaped by a person who receives no notice under section 222 as by a person who receives such a notice which proves in fact ineffective
It seems to me that a person who receives no notice under section 222 has escaped assessment although through no fault of his own the process of assessment has never been set in motion  The assessee also relied upon Commissioner of Income tax Burma vs Ved Nath Singh 2 where Roberts C J Mya Bu and Dunkley JJ observed  We are of opinion that section 34 is applicable to cases in which either no assessment at all has been made upon the person who received the income profits or gains liable to assessment or where an assessment has been made in the course of the year but some portion of the income profits or gains of such assessee for some reason or other has not been included in the order of assessment such income is income which has  escaped assessment  in the year and falls within the ambit of section 34 of the Act  These cases arose before the amendments of 1939 and in those days there was no provision for a general 1 Cal
909 912
2   1018 notice such as is now issued under section 221
Even in those days the return asked for the particulars of the total income during the previous year
Thus at the end of the assessment year it was not possible to issue a notice for a back period beyond the previous year
By the force of section 222 it could be said at the end of any assessment year that in so far as the income of the corresponding previous year was concerned it had escaped assessment
The logical result of this was that if no notice calling for a return under section 22 was issued within the assessment year then section 34 was the only means to get at the tax See Rajendra Nath Mukerjee vs Commissioner of Income tax 1
The scheme of the Indian Income tax Act is entirely different and by fixing a time limit for the issuance of a notice under section 222 makes it clear that in section 34 of the Indian Income tax Act the words escaped assessment  ex facie covered all cases of escaped assessment whether within or without a prior assessment
The assessment there escapes  when once the assessment year expires
The cases under the Incometax Act which expound section 34 are thus not in point
The cases of this Court relied upon by the assessee also do not help
In Kamal Singh vs Commissioner of Income tax 2 it was held that the word  information  was wide enough to include information as to the true and correct state of the law and the word  escaped  was wide enough to cover cases of inadvertence or oversight on the part of the assessing authorities
In Commissioner of Income tax vs Ranchhoddas Karsondas 3 the respondent assessee had submitted a voluntary  return showing no taxable income  and it was held that the Income tax Officer could not ignore the return and proceed under section 34 of the Income tax Act
In Maharajadhiraj Sir Kameshwar Singh vs State of Bihar 4 the income returned was not brought to tax and later under section 26 of the Bihar Agricultural  it was sought to be assessed
Section 26 of that Act was held to cover such a case and the language of that section was extremely wide
These cases are hardly in point
1 L R 1933 61 IA 10
2 1959 Supp 1 SCR 10
3  4  1019 We are thus thrown back upon the construction of the two sections and must find out where the compulsion of the language employed and the general scheme of the provisions lead to
Before doing so I shall discuss one other extraneous consideration called in aid by both the Tribunal and the High Court
The Act followed the Excess Profits Tax Act 1940 which provided for the levy of tax on excess profits made during the chargeable accounting periods within the term beginning on the first day of September 1939 and ending on the thirty first day of March 1941
By succeeding Finance Acts the year 1941 was changed to 1942 1943 1944 1945 and 1946
Thereafter came the Act
Sections 13 and 15 of the Excess Profits Tax Act correspond respectively to sections 11 and 14 of the Act with the difference that the limitation in section 15 was five years
By Act 21 of 1947 which immediately preceded the Act this period of limitation was removed by deleting retrospectively the words  within five years of the end of the chargeable accounting period in question from section 15 of the Excess Profits Tax Act
Thus by the amendment there was no limitation for bringing to tax profits which had escaped assessment and it was so held by Falshaw and Kapur JJ in Telu foam Jain  Co vs Commissioner of Income tax 1
Now the Tribunal and the High Court reason that it was the simplest matter for the legislature to have deleted similar Words from section 14 of the Act if the intention was to create no limitation for the assessment of profits which had not been assessed before
The fact that there was no corresponding change in the Act it is said shows that no first assessment or reassessment could be made after a lapse of four years
This argument views the matter from one angle only
There is another side to it which is equally plausible
The intention of the legislature in making the amendment in the Excess Profits Tax Act was manifestly to make the tax leviable by a first assess 1 rent and also by a reassessment without any limit of time
After the amendment no limitation existed either in section 13 or section 15 of the Excess Profits Tax Act
1 1020 Such assessment or reassessment could be made at any time or even after considerable time
The question of hardship involved in calling for returns after the lapse of considerable time which has weighed heavily with the High Court did not seem to have distressed the legislature
It is thus impossible to think that the legislature left the Act untouched from a converse motive
We must not forget that the Act was then freshly enacted and the first chargeable accounting period was hardly over for any assesesee and every case of escaped assessment or under assessment was also well within the time prescribed by section 14 of the Act
There would hardly be any present need for such a drastic provision to start with
It might well have been thought that there would not be cases in which four years could not be considered ample except those cases where a particular business was never brought to tax at all
For that it might equally have been thought that section 11 as is contended by the Commissioner was sufficient
The amendment in section 15 of the Excess Profits Tax Act might have been advisedly made to reach even those cases where though the profits of a business had once been brought to assessment they needed to be re assessed even though the first assessment resulted in some tax or no tax
For those cases it might have been felt that the limit of five years ought to go
If this is as good an explanation of the intention of the legislature in amending section 15 then the reason given by the High Court is not the only explanation and it cannot be accepted
If the intention of the legislature can be gathered in two different ways it is sheer speculation to say which is the true intention
As said earlier it is always inadvisable to go by a supposed intention of the legislature and construe the words of the statute in the light of that supposed intention
The intention must be gathered from the words of the section in which the legislature has chosen to express its intention and not vice versa
I am accordingly of the view that this ground is not valid
The High Court and the Tribunal read section 111 somewhat differently
According to the Tribunal 1021 the notice under that section must issue before the end of the chargeable accounting period and according to the High Court within four years from the end thereof There is nothing in the section which justifies any of these two readings
Three classes of persons are there mentioned
They are a persons believed to be engaged in any business b persons believed to have been so engaged in any chargeable accounting period and c persons believed to be otherwise liable to business profits tax
The first two categories clearly show that whereas for the first category the assessee must be engaged in business in the year of notice for the second category the notice may issue in respect of a back chargeable accounting period
The words  to be engaged  and  to have been so engaged during any chargeable accounting period  cannot but refer to  current  and  back  chargeable accounting periods
The latter words plainly refer to a back period and the word  any  shows that it need not be the  back  period immediately preceding the  current  chargeable accounting period only
Indeed it is possible to issue the notice under section 111 after March 31 1949 in respect of the very first chargeable accounting period and also every succeeding period lying within the term beginning on April 1 1946 and ending on March 31 1949
If this be the natural meaning of the section and this meaning is made more probable by the residuary category viz persons otherwise liable to pay business profits tax it is an irresistible conclusion that no period comparable to the assessment year under the was either introduced or contemplated
The distinction between  back  chargeable accounting periods and current chargeable accounting periods also disappears
Unless one can say when or after how much lapse of time profits escape assessment section 14 cannot be made applicable at all
Section 4 of the Act says that in respect of any business to which the Act applies there shall be charged levied and paid a tax referred to as the business profits tax
The liability that is incurred can only be discharged by payment of the tax and the charging and levying 132 1022 are duties laid upon the Income tax Officers who execute them by issuing a notice under section 11 and by assessing and demanding the tax
For this purpose any person believed to be engaged in business to which the Act applies or to have been so engaged or to be otherwise liable can be called upon to make a return
Of course the proceedings thus initiated may or may not result in tax but that is another matter
This is the first operation of the Act against a likely taxpayer
For this purpose it is admitted on all hands there is no express limitation in section 111 or elsewhere
The question next is whether there is anything in section 14 which impliedly imposes such a limitation
That section deals with  escaped assessment under assessment  or  excessive relief 
The last two categories ex facie refer to an assessment after a prior assessment
The question thus is whether the words  escaped assessment  refer also to an assessment after a prior assessment
The word  assessment  was explained by the Judicial Committee in Commissioner of Income tax vs Khemchand Ramdas 1
It sometimes means the computation of income or profits sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in a taxing Act for imposing the liability on an assessee
In section 14 where the words  escaped assessment  are used it means that there was a determination of the amount of the tax payable but some profits escaped that process either wholly or partly
Profits cannot be said
to have escaped assessment when there are proceedings afoot and assessment is being made
In my opinion they cannot be said to have escaped assessment when they are exposed to assessment and assessment has yet to be done
It is to be noticed that section 14 requires  definite information  in the possession of the Income tax Officer and to  discovery  by him of the fact of escaped assessment as a condition precedent to action under that section
If under section 4 the liability to tax exists and there is no limitation and if under section 111 it can be II 1938 LR 65 IA 236 1023 enforced without any limit as to time the profits cannot be said to have escaped assessment any more than where assessment proceedings are afoot and are not yet over
This is not a case where by the operation of some other period of limitation the assessment proceedings can be said to be out of reach of the Department
If the profits are still assessable by reason of the charge under section 4 and are subject to the process under section 111 there is no  escaped assessment 
There are here no back periods which cannot be reached under section 11 like the period prior to the previous year of the  for which only section 34 is available
All chargeable accounting periods are on the same footing and section 11 is wide enough to reach all of them
Further it is to be noticed that there is no time limit for completing an assessment once begun
Also if profits which have never been processed can be dealt with both under sections 11 and 14 and both have the limit of 4 years why have two sections one depending on belief and the other on definite information  We must look to some different meaning and different fields of operation
That can only be if the words  escaped assessment  are given a restricted meaning in section 14
In this view of the scheme of the Act and the clear words of section II 1 it seems difficult to put a limit of time because one is contained in section 14 in respect of profits escaping assessment
No doubt both the sections must be construed harmoniously  but as was observed by Sir Lawrence Jenkins in Mohammad Sher Khan vs Seth Swami Dayal 1 the provisions of one section cannot be used to defeat those of another unless it is impossible to effect reconciliation between them
Equally both sections must not be made to operate in the same field
In the Act with which we are concerned reconciliation is only possible if the words of section 111 and section 14 are given meanings without importing certain implications from one into the other and the only way different fields can be found is to read them differently
The interpretation of the High Court if I may figuratively describe it makes the two sections march hand in hand during the four 1 1922 LR 49 IA 60
1024 years which ex facie could not have been intended as one section depends upon the entertainment of belief and the other section requires definite information leading to a positive discovery
Read in this way it is clear that section 11 effectuates the assessment levy and collection of tax from persons believed to be liable while section 14 enables a reopening of cases where after an assessment there is discovery that profits have escaped assessment due to one reason or another
The use of the words  escaped assessment in the context of the Act has reference only to those cases where profits of a business were brought to process once but for some reason some profits escaped assessment or were under assessed or received excessive relief
The insistence upon definite information leading to such a discovery before action is taken under section 14 also points in the same direction
 Definite information  denotes that there is something discovered which can demonstrate the falsity of something done previously
The existence of belief shows the possibility of there existing some profits which need to be taxed
Whereas  definite information  points to a state of affairs in which though there was a processing of the profits before something definite having been found out the result of that processing is discovered to be incorrect the word  belief  in section 11 shows that the Income tax Officer is to embark upon a first enquiry as to whether the business comes within the purview of the Act or not
To summarise therefore though it is possible to make the chargeable accounting period correspond to the previous year  under the Income tax law there is no method by which the conception of an assessment year can be brought in
To say that section 11 operates for full four years is to find not an  assessment year  but an  assessment period 
During the course of those four years the tax would be realisable under section 11 because the assessment period could not be said to be over
But then there would be no room for the operation of section 14 particularly where it speaks of  escaped assessment 
During the whole of the four years there would never be any escaped assessment and there would be no further time available 1025 for the operation of section 14
Even on this reasoning some meaning other than what prevails under the will have to be given to the same words by the compulsion of the language employed in sections 11 and 14
On the reasoning of the High Court the whole of the period of four years would be the  assessment period 
It would begin at the end of the chargeable accounting period and end after the lapse of four years
It would embrace all the chargeable accounting periods within reach
But then section 14 also operates in the same manner and for the same time
This construction renders section 14 otiose
Nor do I think that there is any unreasonableness in the construction which I have indicated above
The legislature might have been solicitous that persons who have been subjected to the process of assessment once should not be exposed to a second peril except within the reasonable period of four years from the end of the chargeable accounting period but it did not view in a similar way those persons who were never troubled before but whose liability to pay tax remained unaltered
The motive with which limitation was introduced in one section cannot be the motive for the Courts to introduce the same period in quite another section
To adopt the reasoning of the High Court would be to make no distinction between sections 11 and 14 and to render meaningless the fiction to be found in the last words of section 14
For profits which have never been brought to assessment there would be two notices possible in some cases one under section 11 1 and the other under section 14 one requiring only the entertainment of a belief as to a certain state of things and the other requiring definite information and discovery that profits have escaped assessment
These two conditions cannot co exist in the same case
Harmonious construction requires that there should arise no impossible situations
Such situations are avoided if the operation of section 11 is confined to those cases where there has been no prior assessment and the operation of section 14 to those cases where after a prior assessment there is an escaped assessment under assessment or excessive relief
For the subsequent and reopened assessment there is a limit of 1026 four years but for the assessment for the first time there is no limit
I have looked into the Rules framed under the Act
No doubt R 50 speaks of a period during which refunds can be claimed and it may be argued that this rule has to be interpreted in harmony with the Act
If the Rule cannot be reconciled with the Act then the Rule must fail
See Maxwell on Interpretation of Statutes 10th Edn p 51 where the following passage occurs  If reconciliation is impossible the subordinate provision must give way and probably the instrument would be treated as subordinate to the section
 See also Institute of Patent Agents vs Lockwood and Minister of Health vs R Ex parte Yaffe 2 
The breakdown of R 50 would leave into operation R 48 which is without any limitation of time and refunds would be available under that Rule
This argument receives great support from the fact that under the Excess Profits Tax Act sections 48 and 50 of the Indian  were brought in mutatis mutandis
If as has been shown above there is no limitation either under section 13 or section 15 of the Excess Profits Tax Act section 50 will have to be applied to that Act without any limit as to time
It appears to me that R 50 is not framed in consonance with the spirit underlying section II and if it was necessary for me to say so I would have been disposed to thinking that being a Rule of the Board of Revenue it would have to give way even though under the Act it has to be read as a part thereof
This argument therefore has no validity
In my opinion the answer to the first question should be in the affirmative
In view of this answer the second question would not fall to be answered
I would therefore allow the appeal with costs here and below
BY COURT In accordance with the judgment of the majority the appeal is dismissed with costs
Appeal dismissed
1  360
2  503


Summary:
In the new State of Mysore Now Karnatake which came into existence on 1 11 56 as a result of integration of the areas which formed part of erstwhile States of Mysore Madras Coorg Bombay and Hyderabad the Government on 6 2 58 7 2 58 and 2 12 60 respectively promulgated the following Rules all framed under Article 309 of the Constitution namely The Mysore Government Servants Probation Rules 1957 The Mysore Government Servants Seniority Rules 1957 and The Mysore Public Works Engineering Department Services Recruitment Rules 1960 The recruitment Rules envisaged appointment of Assistant Engineers in the Public Works Department by direct recruitment to the extent of 40 and by promotion for the rest viz 50 from the cadre of Junior Engineers and 10 from the cadre of supervisors
The cadre of Assistant Engineers was to consist of 344 permanent and 345 temporary posts
Prior to 1 11 56 in the merged States there was a non gazetted class designated as graduate supervisors in Mysore State as Junior Engineers in the Madras State and as supevisors in the States of Bombay and Hyderabad
The claim of the graduate supervisors who were given charge of sub divisions prior to 1 11 56 and continued to hold the same even thereafter for equation of their posts with those of Assistant Engineers was rejected by the Central Government
However on 15 11 58 167 of them including 107 graduate supervisors from Mysore and between the period 2nd Dec 1958 and 13th October 60 299 more persons of the same class were promoted as officiating Assistant Engineers
With reference to three notifications of the Mysore Public Service Commission dt 1 10 58 4 5 59 and 1 4 61 eighty eight candidates were appointed on 31st Oct  61 ie 8 days after the amendement of the Recruitment Rules giving them retrospective effect from 1st March 1958 as Probationary Assistant Engineers by direct recruitment
The challenge to their appointment was ultimately rejected by this Court in B N Nagarajan vs State of Mysore  Ors 1966 3 SCR p 682 holding that their appointment although made after the Recruitment Rules had come into force were valid as the process of direct recruitment had been set in motion by the State Government in exercise of its executive power under Article 162 of the Constitution of India well before the Recruitment Rules were promulgated and that these appointments were therefore outside the Recruitment Rules
In the year 1971 various orders were passed promoting some of the direct recruits to the posts of Executive Engineers and those orders were challenged by 938 the promotees on the ground that they had been given promotions on regular basis which amounted to substantive appointments and that therefore they should rank senior to the direct recruits
Subsequent to the issue on 4 9 73 of a revised seniority list snperseding the list G prepared on 28 9 72 further writ petitions were filed by the promotees
All the petitions were heard together by the High Court and allowed with the following directions i Promotees other than those covered by direction ii and direct recruits would not be governed by the quota system as envisaged in the Recruitment Rules
ii Promotees who were appointed to posts of Assistant Engineers with effect from 1st of March 1958 or later dates would be governed by the quota system as envisaged in the Recruitment Rules
iii Promotees appointed as Assistant Engineers prior to 31st October 1961 would rank senior to the direct recruits whose appointments were made on that date
iv The claim of each of the promotees to the next higher post shall be con sidered with effect from a day prior to that on which any officer found junior to him was promoted
Allowing the appeals by special leave the Court  HELD 1
The scope of the writ petition was not limited to thq question of preme tion of Assistant Engineers as Executive Engineers
The attack on the seaiority list dated 4th Sept 1973 was inherent in the case set up by the promotees of which it formed an integral part
Though no prayer had been made by the promotees to quash or rectify the seniority list dated 4th September 1973 their whole case was based on the contention that they had been promoted to the posts of Assistant Engineers in a substantive capacity prior to the appointment of direct recruits that they would take precedence over direct recruits in the matter of seniority and regular absorption in the cadre of Assistant Engineers and that it was on that account that the promoion of direct recruits to the posts of Executive Engineers without consideration of the case of the promotees for such promotion was illegal
946E G 2
No exception is or can be taken on behalf of the promotees to the finding arrived at by the High Court that the appointment of direct recruits to the posts of Assistant Engineers was in order in view of the judgment of this Court in B N Nagarajan vs State of Mysore 1966 3 SCR p 682
Nor can it be urged with any plausibility on behalf of direct recruits that the appointment of the promotees as Assistant Engineers prior to the enforcement of the Recruitment Rules lay outside the powers of the Government or was otherwise illegal
946G H 947A V B Badami and Ors
vs State of Mysore and Ors
 1976 1 SCR 815 and B N Nagarajan vs State of Mysore and Ors  followed
A combined reading of Rule 2 of the Seniority Rules and the definition of the words appointed on probation and Probationer in Rule 2 of the Probation Rules makes it clear that the direct recruits were appointed as Assistant 939 Engineers substantively in clear vacancies as envisaged by clause a of rule 2 of the Seniority Rules
If any of the promotees also satisfied that requirement at any time earlier to the 31st of October 1961 he would be bracketed with the direct recruits under that clause and his seniority vis a vis those recruits would then be govened by clause b of the rule ie on the basis of his and their respective dates of confirmation
If on the other hand none of the promotees can be said to have been appointed substantively in a clear vacancy clause a aforesaid would have no application to them and all direct recruits would rank senior to them
947G H 948A B 4
In the instant case all through the relevant period the promotees held appointments as Assistant Engineers in non substantive capacity ie either on an officiating or a temporary basis
This being the position they would all rank junior to the direct recruits who from the very start held appointments made substantively in clear vacancies
950H 951A a The language employed in the first order dated 15th November 1958 exhibit
A appointing promotees as Assistant Engineers makes it clear that the promotion of the 167 officers was not substantively made the tenure being specifically stated to be either officiating or purely temporary and subject to review after the finalisation of the inter se seniority list of supervisors and the Recruitment Rules which expressions clearly militate against a substantive appointment
948E G b Orders made by the State Government later on right upto the 31st October 1961 when the direct recruits were appointed as Assistant Engineers did not improve the position of any of the promotees in any manner
These orders were either silent on the point of the nature of the tenure of the promotees as Assistant Engineers or stoted in no uncertain terms that the promotees would hold the posts of Assistant Engineers on a temporary or officiating basis
948G H 949A c The two Notifications dated 27th February 1962 and order Exhibit D
dated 6th October 1962 the combined effect of which was to promote the said 107 officers as Assistant Engineers with effect from 1st of November 1956 on a regulaur basis do not give it the colour of permanence to the appointments of the promotees as Assistant Engineers which cannot therefore be deemed to have been made substantively right from the 1st of November 1956 for two reasons Firstly the words regular or regularisation do not connote permanence
They are terms calculated to condone any procedural irregularities and are meant to cure only such defects as are attributable to the methodology followed in making the appointments
Secondly when rules framed under Article 309 of the Constitution of India are in force no regularisation is permissible in exercise of the executive powers of the Government under Article 162 thereof in contravention of the Rules
The regularisation order was made long after the Probation Rules
the Seniority Rules and the Recruitment Rules were promulgated and could not therefore direct something which would do violence to any of the provisions thereof
Regularisation in the present case if it meant permanence operative from the 1st of November 1956 would have the effect of giving seniority to promotees over the direct recruits who in the absence of such regularisation
would rank senior to the former because of the Seniority Rules read with the Probation Rules and may in consequence also confer on the promotees a right of priority in the matter of sharing the quota under the Recruitment Rules
In 940 other words the regularisation order in colouring the appointments of promotees as Assistant Engineers with permanence would run counter to the rules framed under Article 309 of the Constitution of India
What could not be done under the three sets of Rules as they stood would thus be achieved by an executive fiat
And such a course is not permissible because an act done in the exercise of the executive power of the Government cannot override rules framed under Article 309 of the Constitution
949B D 950D G State of Mysore and Anr
vs section V Naraynaswami 1967 1 SCR 128 and R N Nanjundappa vs T Thimmiah   applied
The Court made it clear a that this order does not cover such officers as were holding the posts of Assistant Engineers on a substantive basis prior to the 1st of November 1956 when the new State of Mysore now known as Karnataka came into being and the case of any Assistant Engineer who acquired a substantive status prior to the promulgation of the Recruitment Rules and the appointment of the direct recruits b that persons falling within these two categories will first have to be accommodated in the clear vacancies available and only the remaining vacancies will have to be utilised for fitting in the direct recruits and the Assistant Engineers who have disputed their claim in these proccedings and c that the quota rule will not stand in the way of the Government giving effect to this arrangement which has been taken care of in the anemendment promulgated on the 23rd of October 1961 to the Recruitment Rules