Case: India United Mills Ltd Vs. Commissioner Of Excess Profitstax, Bombay

relief which depended on facts then in existence. That that is the ratio of the decision will appear from the following passages in the judgment."I apprehend that there is no distinction in this matter between an original assessment and an additional assessment under section 125. Taking section 125 of the Income Tax Act 1918, for the purposes of illustration, and because it was the section under which the additional assessments were made in this case, it seems to me that section 18 of the Finance Act, 1920, and the Income Tax Act, 1918, relate to the facts as they exist at the time. The person chargeable was allowed a deduction, and he was rightly allowed a deduction at the time. He proved within the terms of section 18 of the Act of 1920 that his wife was living with him, and he was rightly allowed a deduction at that time."14. The principle of this decision is that assessments should not be reopened on the basis of subsequent events, when the facts on which the assessments had been made remained unaffected thereby. In this connection, reference may be made to the decision in Gray (H. M. Inspector of Taxes) v. Lord Penrhyn, where it was held that action under section 125 could be taken with reference to events which happened subsequently, those events having relation to the facts on which the assessments had been made. There, the assessee, who was the owner of a slate quarry had shown in his income-tax returns various amounts as paid to labourers, and those amounts had been allowed as business expenses. In fact, sums amount to Pound 5, 201 had been misappropriated by the officers employed by him and had not been expended. The defalcations were subsequently discovered, and in 1934 the assessee realised that amount from his auditor and his insurer as damages for negligence. The Income-tax Inspector sought to revise the assessments from 1930 to 1933 by claiming that amount as wrongly deducted during those years, or in the alternative, to assess it as a business income in 1934. The Commissioner held that the assessments for 1930 to 1933 could not be reopened on the basis of the receipt in 1934, as that was an event subsequent to the period of assessment, one of the cases relied on by him in support of his conclusion being Dodworth v. Dale. Finlay. J., disagreed with this view. He held firstly that the amount could be treated as a business receipt and added :"If I felt any difficulty about that, which I do not, I should be prepared to say that there is nothing in the authorities which prevents that re-opening which manifestly ought to be made, if necessary, and that if necessary the previous years ought to be re-opened."15. Then there is the decision in Anderton & Halstead Ltd. v. Birrell referred to in Dodworth v. Dale and relied on by Mr. Kolah. There, the assessees had written off certain debts as irrecoverable in 1921 and 1922. The Inspector of Taxes had, on a consideration of all the facts, agreed to this, and assessments were made on the footing that they were bad debts. Thereafter, the assessees continued to have dealings with those debtors, and gave them further credit in subsequent years. On this, the Inspector sought to review the assessments on the ground that the debts were not, in fact, bad debts. In negativing this contention, Rowlatt, J., observed that "the word discover does not, in my view, include a mere change of opinion on the same facts and figures upon the same question of accountancy, being a question of opinion", that under the rules, the estimate to what extent a debt is bad was "not a prophecy to be judged... by after events, but a valuation of an asset de praesenti upon an uncertain future to be judged with regard to its soundness as an estimate upon the then facts and probabilities", and that an estimate once made could not, on the same materials, be revised in subsequent years.16. Apart from the fact that some of the observation contained in this judgment were considered by Finlay, J., in Williams v. Trustees of W. W. Grundy and by the Court of Appeal in Commercial Structures Ltd. v. Briggs, to have been widely expressed, the decision itself has no application to the facts of the present case. We are concerned here not with a valuation in praesenti of a debt estimated to be bad, but with a relief granted with reference to a state of facts which were anticipated to come into existence only in the future. Moreover, Inland Revenue Commissioners v. Pearson; Same v. Pratt and Anderton & Halstead v. Birrell are decisions on section 125 of the English Income Tax Act of 1918.17. There has been quite a literature on the meaning of the word "discovers" occurring in that section and in the corresponding sections of other English Income Tax statutes, and the question has also been considered in the Indian Courts on the language of section 34 of the Indian Income-tax Act, as it stood prior to the amendment of 1948. Whatever the position if the question were to arise under the Indian Income Tax Act - and there is no need to express any final opinion on it - having regard to the nature and scope of the provisions of the Excess Profits Tax Act and in particular section 26 (3), we are of opinion that the word "discovers" in section 15 of the Act is of sufficient amplitude to take in subsequent events which have a material bearing on the facts and circumstances on which assessment had been made or relief grants, and that when the Excess Profits Tax Officer finds that an assessee to whom relief had been granted under section 26 (3) has utilised the buildings, plant or machinery in business after the termination of the war, he is entitled to proceed under section 15 of the Act.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The meaning given to it in the Oxford English Dictionary is "the finding out or bringing to light that which was previously unknown." (Vol. 3, page 433). It will therefore be correct to say that when a person comes to know of a fact of which he had no previous knowledge he discovers that fact, whether his want of knowledge is due to its not have been in existence during the material period, or to its having been unknown to him even though it might have been in existence. The word thus being one of wide import, what meaning it bears in any particular enactment must depend on thesection is, it should be emphasised, not a charging section, but a machinery section. And a machinery section should be so construed as to effectuate the charging sections. Section 15 is intended to vest in the Excess Profits Tax Officer a power to amend the assessment, when it is found that the relief granted is in excess of what the law allows. One of the sections under which relief could be granted under the Act is section 26 (3) and therefore section 15 must be so interpreted as to confer a power on the Excess Profits Tax Officer to revise the assessment when relief had been erroneously granted under that section. Now, section 26 (3) provides for relief being granted when the buildings, plant or machinery would not be required by the assessee for his business after the war. And when it is found that after obtaining a relief under that section, the assessee uses buildings, plant and machinery in his business after the war, and that he has in consequence obtained a relief to which he was not entitled under the Act, where is the machinery set up by the Act for imposing the correct charge, unless it be under section 15 ? And how is that section to be invoked if "discovery" is to be limited to facts, which were in existence during the chargeable accounting period ? The relief to be granted under section 26 (3) is by its very nature with reference to a state of affairs in futuro; and a finding that it has been erroneously granted could be reached only on the basis of facts which must arise subsequent to the chargeable accounting period. To hold that no action could be taken in such cases under section 15 is to hold that the statute has provided no machinery for carrying into effect the conditions prescribed in section 26condition had been imposed under the proviso to that section, and that condition was subsequently broken, the only action that could be taken thereon is initiation of proceedings for reassessing the profits, ignoring the relief granted under section 26 (3); and the machinery therefor is provided only in section 15 of the Act. The scope of the two sections being different, the proviso to section 26 (3) cannot be construed as affecting, to any extent, the jurisdiction conferred by section 15 of thesection 125 of the Income Tax Act 1918, for the purposes of illustration, and because it was the section under which the additional assessments were made in this case, it seems to me that section 18 of the Finance Act, 1920, and the Income Tax Act, 1918, relate to the facts as they exist at the time. The person chargeable was allowed a deduction, and he was rightly allowed a deduction at the time. He proved within the terms of section 18 of the Act of 1920 that his wife was living with him, and he was rightly allowed a deduction at thatprinciple of this decision is that assessments should not be reopened on the basis of subsequent events, when the facts on which the assessments had been made remained unaffectedhas been quite a literature on the meaning of the word "discovers" occurring in thatin the corresponding sections of other English Income Tax statutes, and the question has also been considered in the Indian Courts on the language of section 34 of the Indian Income-tax Act, as it stood prior to the amendment of 1948. Whatever the position if the question were to arise under the Indian Income Tax Act - and there is no need to express any final opinion on it - having regard to the nature and scope of the provisions of the Excess Profits Tax Act and in particular section 26 (3), we are of opinion that the word "discovers" in section 15 of the Act is of sufficient amplitude to take in subsequent events which have a material bearing on the facts and circumstances on which assessment had been made or relief grants, and that when the Excess Profits Tax Officer finds that an assessee to whom relief had been granted under section 26 (3) has utilised the buildings, plant or machinery in business after the termination of the war, he is entitled to proceed under section 15 of the