DESAI, J. - (1.) THE short question which arises for determination in this application under Art. 226 of the Constitution is whether the action taken by the ITO under S. 35 (6) of the Indian IT Act was within time.
(2.) THE petitioner was assessed to income -tax and also to business profits tax for the year ending 31st March, 1947. The taxable profits of the petitioner for the purpose of the Business Profits Tax Act, 1947, were assessed at Rs. 1,10,652 and business profits tax assessed thereon was Rs. 18,442. The second chargeable account period for the business profits tax was the period ending the 31st of March, 1949. The assessment order in respect of that period was made on 27th Jan., 1956, and it was then found that there was a deficiency of Rs. 1,13,169 which, by virtue of the provisions of s. 6 of the Business Profits Tax Act, 1947, was deemed to have reduced the taxable profits of the previous chargeable accounting period ending 31st March, 1947. In this assessment order, therefore, it was stated that the deficiency would be set off against the taxable profits of the first chargeable accounting period ending 31st March, 1947. The order setting off the deficiency, however, was actually passed by the officer on 18th Feb., 1960, and since the deficiency was larger than the taxable profits of business of the first chargeable accounting period the entire business profits tax of Rs. 18,442 was declared as refundable to the petitioner. The first respondent, the ITO, thereafter, in view of S. 10 of the Business Profits Tax Act, proceeded to rectify the income -tax assessment for the asst. year 1949 -50 under S. 35 (6) of the Indian IT Act. The petitioner opposed this action of the part of the ITO contending that it was barred by law inasmuch as the four years' period provided under S. 35 (6) commenced from 26th Jan., 1956, and, therefore, the action proposed to be taken by the ITO, which was beyond the period of four years from the said date was barred by limitation. The petitioner's contention was not accepted by the ITO, who took the view that the four years' period commenced not from 27th Jan., 1956, but from 18th Feb., 1960, when the order was made setting off the deficiency against the taxable profits of the earlier year. He, therefore, by his order dt. 10th March, 1960, rectified the assessment order under S. 35 (6) and issued a notice of demand under S. 29 of the Indian IT Act for Rs. 15,452.18 nP. from the petitioner. Being aggrieved by the said order the petitioner filed a revision application under S. 33A of the IT Act to the second respondent, the CIT, but the said application was rejected by the CIT on 31st Jan., 1961. He has thereafter filed the present writ petition praying for an appropriate writ, direction or order quashing the aforesaid orders of the first and second respondents. In our opinion the contention urged by the petitioner that the action taken by the ITO under S. 35 (6) was barred by limitation is not tenable. Mr. Palkhivala, the learned counsel for the petitioner, has urged that under S. 6 of the Business Profits Tax Act of 1947 as soon as a deficiency of profits is found to have occurred in any chargeable accounting period in any business, the taxable profits of the business shall be deemed to be reduced and relief has to be granted in the manner provided in the said section. In the present case, in view of the said provision, the deficiency having been found to have occurred on 27th Jan., 1956, the aggregate amount of the taxable profits of the prior period ending with 31st March, 1947, must be deemed to be reduced on that date by the amount of the deficiency and the business profits tax payable in respect thereof must also be deemed to be reduced accordingly and the relief consequent thereon became receivable by the assessee by repayment also on the said date. The further order dt. 18th Feb., 1960, setting off the deficiency and declaring the amount of Rs. 18,442 as refundable to the assessee was merely a ministerial order giving effect to the statutory relief under S. 6 of the Business Profits Tax Act to which the assessee had been entitled on 27th Jan., 1956. No doubt under S. 10 of the Business Profits Tax Act and S. 35 (6) of the Indian INCOME TAX ACT, 1922, the first respondent was entitled to rectify the IT assessment order for the asst. year 1949 -50 but the four years' period during which he could do so commenced on 27th Jan., 1956, when the deficiency of profits in the chargeable accounting period ending 31st March, 1949, occurred and the statutory consequences under S. 6 of the Business Profits Tax Act ensued. According to Mr. Palkhivala the present order under S. 35 (6) which has been passed by the first respondent on 10th March, 1960, being beyond a period of four years from 27th Jan., 1956, is unauthorised and contrary to law.
(3.) NOW , it may be that under S. 6 of the Business Profits Tax Act, a certain result was bound to follow on the deficiency having been found to have occurred, but S. 35 (6) of the Indian IT Act required an order making or modifying the assessment of the business profits tax in order to start the running of the four years' period of limitation for the rectification of the assessment order under s. 35 (6) of the Indian IT Act. In the present case the said order was made by the officer only on 18th Feb., 1960. The period of four years, therefore, to rectify the IT assessment order was a period of four years commencing from 18th Feb., 1960. The action taken by the ITO under S. 35 (6), therefore, was perfectly within time. The result, therefore, is that the petition fails and is dismissed with costs. The rule is accordingly discharged.;