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

In proceedings for assessment of excess profits for the year 1941, the appellant company applied for relief under section 26 (3) of the Act, which, so far as is material for the purpose of this appeal, runs as followson an application made to it through the Excess Profits Tax Officer the Central Board of Revenue is satisfied that the computation in accordance with the provisions of Schedule I of the profits of a business during any chargeable accounting period would be inequitable, owing to any of the following circumstances, namely -*****(b) the provisions of buildings, plant or machinery which will not be required for the purposes of the business after the termination of the present hostilities;*******The Central Board of Revenue may direct that such allowances shall be made in computing the profits of the business during that chargeable accounting period as the Central Board of Revenue thinks just :Provided that in making such direction the Central Board of Revenue may impose such conditions as it deemstheir application under section 26 (3) under the heading "Buildings, Plant and Machinery provided for the production of War Materials, which will not be required for the purposes of the business after the termination of the present hostilities." The assessees stated that the production of khaki textiles for war purposes had "necessitated additional plant in the companys dye works", that the requirements as to canvas had "necessitated additional textile machinery for the various doubling processes and additional winding machinery for the canvas waft"; that "much of the additional plant purchased by the company in 1941 comes under these two headings"; and that "their manufacture in bulk will cease once and the was is over and the plant bought for their manufacture will be idle and will have to be disposed of". The assessees then proceeded to give particulars of the machinery and plant which "will undoubtedly have to be scrapped after the war", and whose "postwar value would be as scrap material". Then they set out "the additional buildings, plant and machinery which have been installed as a war measure, " and estimated their value at Rs. 4, 85, 633.On this application, the Central Board of Revenue passed the following orderCentral Board of Revenue having considered the application of E. D. Sassoon United Mills Ltd. under sub-section (3) of section 26 of the Excess Profits Tax Act, 1940, that, by reason of the following circumstances, viz., -That the provision of buildings, plant or machinery which will not be required for the purposes of the business after the termination of the present hostilities,the computation of the profits of that business during the chargeable accounting period commencing 1st January, 1941, and ending 31st December, 1941, in accordance with the provisions of Schedule I of the Act would be inequitable.I (the First Secretary, Central Board of Revenue) hereby give you notice that the Central Board of Revenue has directed that, allowance of Rs. 4, 06, 394 shall be made in respect of such circumstances, in computing the profits of such chargeable accounting period, - such allowance to be inclusive of all depreciation allowable for excess profits tax purpose in respect of the assets inwere similar applications by the assessees for relief under section 26 (3) of the Act for the accounting periods 1942 and 1943, and similar orders were passed by the Central Board of Revenue granting allowance respectively of Rs. 4, 00, 000 and Rs. 3, 94,war terminated on 31st March, 1946. In the course of enquiry into the assessable profits of the company for the chargeable accounting period ending 31st March, 1946, the Excess Profits Tax Officer found that the buildings, plant and machinery in respect of which relief had been granted under section 26 (3) of the Act were being actually used by the assessees for the purposes of their business even after the termination of the hostilities. He therefore decided to take action under section 15 of the Act, and issued the requisite notices thereunder to them for reopening the assessments for the years 1941, 1942,That was resisted by them on the ground that the facts discovered did not relate to the years of account, and could not therefore form the basis for reopening the assessments for those years. By his order dated 28th December, 1948, the Excess Profits Tax Officer overruled this contention, and revised the assessments for the periods in question on the footing that there were no grounds for granting relief to the assessees under section 26 (3) of the Act. This order was confirmed on appeal by the Appellate Assistant Commissioner, but was reversed by the Appellate Tribunal, which held by a majority that it was not open to the Officer to take action under section 15 of the Act on the basis of facts, which had come into existence subsequently. The respondent thereupon applied for reference under section 66 (1) of the Income-tax Act, and section 21 of the Act, and on that application, the Tribunal referred the following question of law for the decision of the High Courtthe revised assessments for the chargeable accounting periods 1941, 1942 and 1943 are liable to be cancelled on the ground that the Excess Profits Tax Officer erred in invoking the provisions of section 15 of the Excess Profits Taxwas also another question referred by the Tribunal to the High Court, and that was answered adversely to the appellant. But as no argument was addressed before us on that question, there is no need to refer toreference came before Chagla, C.J., and Tendolkar, J., who disagreeing with the Tribunal held that the fact "the assessee had obtained excessive relief" and the "discovery of the fact that it has used buildings, plant or machinery for the purpose of its own business after the war" were sufficient to bring the case within the purview of section 15 of the Act, and accordingly answered the question in the negative. The correctness of this decision is challenged in this appeal, which comes before us by special leave, on the ground that on a proper construction of that section the Excess Profits Tax Officer had, on the facts found, no power to revise the assessment for the accounting periods, 1941, 1942 and 1943.

Court's reasoning:
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