PETITIONER:
DEPUTY COMMISSIONER OF COMMERCIAL TAXES
Vs.
RESPONDENT:
H.R. SRI RAMULU
DATE OF JUDGMENT11/01/1977
BENCH:
KHANNA, HANS RAJ
GOSWAMI, P.K.
KAILASAM, P.S.
CITATION:
1977 AIR 870 1977 SCR (2) 593
1977 SCC (1) 703
ACT
Limitation--Starling point for computing the period of
four years mentioned in s. 21(3) for the exercise of revi-
sional powers under s. 21(2) against an order under s. 12A
of the Mysore Sales Tax Act 1957 in respect of an escaped
turnover--Whether initial assessment Order or an order made
under s. 12A is the starting point for computation.
HEADNOTE
In respect of the assessment years 1959-60 and 1960-61,
fresh assessments were made under s. 12A of the Mysore
General Sales Tax Act 1957 by the , Commercial Tax Offi-
cer. By his order dated June 8, 1966, certain amounts
which had escaped assessment under the original assessment
orders dated March 21, 1963 were included in the turnover
of the respondent, but the deductions in respect of shop
rent and tree tax were, however, allowed as in the initial
orders. The appellant, in exercise of the powers under s.
21(2) of the Act, by his orders dated June 28, 1967 revised
the orders dated June 8, 1966 disallowing the deductions in
respect of the shop rent, following the decision of this
Court in Shinde Brother etc. v. Deputy Commissioner Raichur
[1967] 1 S.C.R. 548. Two rectification applications and
the two appeals therefrom on the ground that the revisions
of assessment were barred by limitation under s. 21(3) of
the Act and, as such, there was a mistake apparent on the
record were rejected as not maintainable. However, the writ
petitions filed were allowed by the High Court holding
that the orders dated June 28, 1967 were without jurisdic-
tion since they had been made beyond the period of four
years from the date of the initial assessment orders dated
March 21, 1963.
On appeals by special leave to this Court,
HELD: The contention advanced on behalf of the appel-
lants that the period of four years mentioned in s. 21(3)
of the Act should be computed from the orders dated June
8, 1966 made under S 12A of the Act and not from the ini-
tial orders of assessment dated March 21, 1963 is well-
founded. [595 C-D]
Once an assessment is reopened the initial order for as-
sessment ceases to be operative. The effect of reopening
the assessment is to vacate or set aside the initial order
for assessment and to substitute in its place the order made
on reassessment. The initial order for reassessment cannot
be said to survive even partially although the justification
for dessessment arises because of turnover escaping assess-
ment in a limited field or only with respect to a part of
the matter covered by the initial assessment order. The
result of reopening the assessment is that a fresh order
for reassessment would have to be made including for
those matters in respect of which there is no allegation of
the turnover escaping assessment. [596 D-E]
In the present case the assessment orders made under s.
12A were comprehensive orders and were not confined merely
to matters which had escaped assessment earlier and the
only orders which could be the subject-matter of revision
by the appellant were the orders made under s. 12A of the
Act and not the initial assessment orders. [596 E-F]
J. Jaganmohan Rao & Ors. v. Commissioner of Income-tax
and Excess Profits Tax, Andhra Pradesh [1970] 1 S.C.R.
726=75 ITR 373; Commissioner of Sales Tax, Madhya Pradesh
v.H.M. Esufali H.M. Abdulali [1973] 3 S.C.R. 1005----90 ITR
271, followed.
International Cotton Corporation (P) Ltd. v. Commercial
Tax Officer, HubIi & Ors. [1975] 2 S.C.R. 345, applied.
594
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 145-
146/ 1972.
(Appeals by Special Leave from the Judgment and Order
dated 9-12-1970 of the Mysore High Court in Writ Petitions
Nos. 2042 and 2065/70).
Narayan Nettar, for the appellant.
R.M. Mehta, for the respondent.
The Judgment of the Court was delivered by
KHANNA, J.--These two appeals by special leave are
against the common judgment of the Mysore High Court whereby
the High Court in two petitions under article 226 of the
Constitution of India quashed two orders made by the Deputy
Commissioner of Commercial Taxes appellant under section 21
of the Mysore Sales Tax Act, 1957 (hereinafter referred
to as the Act).
The respondent is an excise contractor. He was as-
sessed under the Act for the assessment years 1959-60 and
1960-61 as per orders dated March 21, 1963 made by the
Commercial Tax Officer Raichur. Under those orders the
taxable turnover of the respondent for the two years in
question was determined after deducting the shop rent and
the tree tax. For the assessment year 1959-60, a sum of Rs.
2,10,542 was deducted and the net taxable turnover was
determined to be Rs. 25,989. For the year 1960-61 a sum
of Rs. 3,98,350 was deducted and the net taxable turnover
was determined to be Rs. 26,657.
The Commercial Tax Officer initiated proceedings under
section 12A of the Act in respect of the aforesaid years
because he was of the view that some items of turnover had
escaped assessment. As per orders dated June 8, 1966 he
made assessment by including in the turnover of the respond-
ent certain amounts which had escaped assessment under the
original assessment orders dated March 21, 1963. The deduc-
tion in respect of shop rent and tree tax was, however,
allowed to the respondent in orders dated June 8, 1966 as it
had been allowed in initial orders dated March 21, 1963.
On June 28, 1967 the appellant, i.e., the Deputy Commis-
sioner of Commercial Taxes, made two orders revising the
orders dated June 8, 1966. In the said orders the appel-
lant disallowed the deduction which had been allowed to
the respondent in respect of the shop rent. The appellant
in those orders referred to the decision of this Court in
Shinde Brother etc. v. Deputy Commissioner Raichur(1)
and held that the amount of shop rent being not excise duty
should not be deducted in computing the turnover of the
respondent for the two years in question. The taxable turn-
over of the respondent for the two years in question was
accordingly enhanced.
(1) [1967] 1 S.C.R. 548.
595
The respondent made two applications for rectification
of the orders of the appellant dated June 28, 1967. It was
urged on behalf of the respondent that the revision of
assessments was barred by limitation under section 21(3)
of the Act and as such there was a mistake apparent on the
record. The appellant rejected those applications. The
respondent then preferred two appeals to the Sales Tax
Appellate Tribunal. The Tribunal too rejected those ap-
peals on the ground that they were not maintainable. The
respondent thereafter filed two petitions in the High Court
under article 226 for the issuance of writs in the nature of
certiorari for quashing the orders dated June 28, 1967. The
High Court, as already mentioned, allowed both the peti-
tions and quashed orders dated June 28, 1967. In the opinion
of the High Court, orders dated June 28, 1967 made by the
appellant were without jurisdiction since they had been made
beyond the period of four years from the date of the
assessment orders dated March 21, 1963.
Mr. Narayan Nettar, learned counsel for the appellant
has contended in appeal before us that the period of four
years mentioned in section 21 (3) of the Act should be
computed from the orders dated June 8, 1966 made under
section 12A of the Act and not from the initial orders of
assessment dated March 21, 1963. The above stand has been
controverted by Mr. Mehta, who argued the case amicus
curiae as no one appeared on behalf of the respondent.
After giving the matter our consideration, we are of the
view that the contention advanced on behalf of the appel-
lant is well-founded. Before, however, dealing with the
matter, we consider it appropriate to reproduce
the relevant provisions of the Act. Section 12A of the Act
relates to assessement of escaped turnover. Sub-section (1)
of that section at the relevant time read as under:
"(1) Where for any reason the whole or
any part of the turnover of a dealer has
escaped assessment to tax or licence fee or
has been assessed at a lower rate than the
rate at which it is assessable, the assessing
authority may, subject to the provisions of
sub-section (2), at any time within a period
of five years from the expiry of the year to
which the tax or licence fee relates, assess
to the best of its judgment, the tax or li-
cence fee payable on the turnover referred to
after issuing a notice to the dealer and after
making such enquiry as it considers
necessary."
Section 21 of the Act deals, inter alia,
with revisional powers of the Deputy Commis-
sioner. Sub-section (2) and (3) of that
section read as under:
"(2) The Deputy Commissioner may of his
own motion call for and examine the record of
any order passed or proceeding recorded under
the provisions of this Act by a Commercial Tax
Officer subordinate to him and against which
no appeal has been preferred to him under
section 20, for the purpose of satisfying
himself as to the legality or propriety of
such order or as to the regularity of such
proceeding and pass such order with respect
thereto as he thinks fit. 4--112SCI/76
596
(3) In relation to an order of assessment
passed under this Act, the power under sub-
sections (1) and (2) shall be exercisable
only within a period of four years from the
date on which the order was passed."
The short question which arises for determination in
these appeals is that in the event of an order having been
made under section 12A of the Act, what is the starting
point for computing the period of four years, mentioned in
section 21 (3), for the exercise of the powers under section
21(2). Is it the initial assessment order or is it the
order made under section 12A ? In the context of the
present case, the question to be answered is as to whether
the period of four years is to be calculated from March 21,
1963 when the initial assessment orders were made, or from
June 8, 1966 when the orders under section 12A of the Act
were made. So far as this question is concerned, we are of
the opinion that the period of four years should be calcu-
lated from June 8, 1966, i.e., the date on which orders
under section 12A of the Act were made. The reason for
that is that once an assessment is reopened, the initial
order for assessment ceases to be operative. The effect of
reopening the assessment is to vacate or set aside the
initial order for assessment and to substitute in its place
the order made on reassessment. The initial order for
reassessment cannot be said to survive, even partially,
although the justification for reassessment arises because
of turnover escaping assessment in a limited field or only
with respect to a part of the matter covered by the initial
assessment order. The result of reopening the assessment
is that a fresh order for reassessment would have to be made
including for those matters in respect of which there is no
allegation of the turnover escaping assessment. As it is
we find that in the present case the assessment orders made
under section 12A were comprehensive orders and were not
confined merely to matters which had escaped assessment
earlier. In the circumstances, the only orders which
could be the subject matter of revision by the appellant
were the orders made under section 12A of the Act and not
the initial assessment orders.
In the case of V. Jagannathan Rao & ors. v. Commission-
er of Income-tax and Exrcess Profits Tax, Andhra Pradesh
(1) this Court dealt with section 34 of the Indian Income-
tax Act, 1922 which relates to reassessment in the case of
income escaping assessment. It was held by this Court that
once assessment is reopened the previous under-assessment is
set aside and the whole proceedings star afresh. Ramaswami
J. speaking for the Court observed:
"Section 34 in terms states that once
the Income-tax Officer decides to reopen the
assessment he could do so within the period
prescribed by serving on the person liable to
pay tax a notice containing all or any of the
requirements which may be included in a notice
under section 22(2) and may proceed to assess
or reassess such income, profits or gains.
It is, therefore, manifest that once assess-
ment is
(1) [1970] 1 S.C.R. 726=75 ITR 373.
597
reopened by issuing a notice under sub-section
(2) of section 22 the previous under-assess-
ment is set aside and the whole assessment
proceedings start afresh. When once valid
proceedings are started under section 34(1)(b)
the Incometax Officer had not only the juris-
diction but it was his duty to levy tax on the
entire income that had escaped assessment
during that year."
In the case of Commissioner of Sales Tax, Madhya Pradesh
v. H.M. Esufali H.M. Abdulali(1) this Court dealt with
reassessment made under section 19 of the Madhya Pradesh
General Sales Tax Act, 1958. It was held that when reas-
sessment is made, the former assessment is completely reo-
pened and in its place fresh assessment is made. Hegde J.
speaking for the Court observed:
"What is true of the assessment must
also be true of reassessment because reas-
sessment is nothing but a fresh assessment.
When reassessment is made under section 19,
the former assessment is completely reopened
and in its place fresh assessment is made.
While reassessing a dealer, the assessing
authority does not merely assess him on the
escaped turnover but it assesses him on his
total estimated turnover. While making
assessment under section 119, if the assessing
authority has no power to make best judgment
assessment, all that the assessee need do to
escape reassessment is to refuse to file a
return or refuse to produce his account books.
If contention taken on behalf of the assessee
is correct, the assessee can escape his li-
ability to be reassessed by adopting an
obstructive attitude. It is difficult to
conceive that such could be the position in
law."
In International Cotton Corpn. (P) Ltd. v. Commercial
Tax Officer, HubIi & Ors. (2) this Court held that once can
assessment order had been rectified and it was sought to
make a further rectification of that order, the period of
limitation for making such further rectification would
commence not from the date of the original assessment order
but from the date of the earlier rectification order. Alagi-
riswami J. speaking for the Court in this context observed:
"The other attack that the rectification
order is beyond the point of time provided in
Rule 38 of the Mysore Sales Tax Rules is also
without substance. What was sought to be
rectified was the assessment order rectified
as a consequence of this Court’s decision in
Yaddalam’s case. After such rectification
the original assessment order was no longer in
force and that was not the order sought to be
rectified. It is admitted that all the
rectification orders would be within time
calculated from the original rectification
order. Rule 38 itself speaks of ’any order’
and there is no doubt that the rectified order
is also ’any order’ which can be rectified
under Rule 38."
[1973] 3 S.C.R. 1005=90 I.T.R. 271. (2) [1975] 2
S.C.R. 345.
598
Although the above case related to an order which had
been subsequently rectified, the principle laid down therein
would, in our opinion, be also applicable in cases where
reassessment is made on the ground that certain amounts of
turnover had escaped assessment.
Before we conclude, we may observe that according to
section 33B of the Indian Income-tax Act, 1922 the Commis-
sioner cannot revise an order of reassessment made under the
provisions of section 34 of the Act. Likewise, sub-section
(2) of section 263 of the Incometax Act, 1961 expressly
prohibits the revision by the Commissioner of Income-tax of
an order of reassessment made under section 147 of Act. No
such prohibition in the provisions of the Act with that
Act.Nosuch prohibition brought to our notice. which we are
concerned has, however, been brought to our notice.
We would, therefore, accept the appeals, set aside the
judgment of the High Court and dismiss the petitions under
article 226 filed by the respondent. Looking to all the
facts, we leave the parties to bear their own costs in this
Court as well as in the High Court.
S.R. Appeals allowed
1
?599