George Williamson (A) Ltd. Vs. Commissioner of Income-tax and anr. - Court Judgment

Excerpt:
- - 5 along with the return and in the case of its failure to do so, the assessing authority can take recourse to the provisions of section 143(1)(a) of the act. at times, the word 'shall' may be read as 'may' whereas in some context, the word 'may' may be read as 'shall' and it depends on the intention of the legislature as well as the context in which words are used. the court must have regard to the mischief sought to be overcome by the state. a strong line of distinction may be drawn between cases where the prescription of the act affect the performance of a duty and where they relate to a privilege or power. but when a public duty is imposed and the statute requires that it shall be performed in a certain manner, or within a certain time, or under other specified conditions, such prescriptions may well be regarded as intended to be directory only in cases when injustice or inconvenience to others who have no control over those exercising the duty would result if such requirements were essential and imperative. 15. we, therefore, hold that the above provisions of rule 8a are directory in nature and the benefit of development allowance cannot be denied to an assessee who had failed to file the required certificate along with the return but it filed the same at the time of assessment. 16. now, coming to the second question raised before us we find that in the instant case, the assessing authority invoked the provisions of section 143 as the assessee failed to produce the certificate in form no. p.g. agarwal, j.1. this is an appeal under section 260a of the income tax act, 1961 (for short 'the act'), preferred by george williamson (assam) ltd. (hereinafter referred to as the 'appellant').the facts2. the appellant-company filed its return of income on december 31, 1990, showing a total income of rs. 4,95,23,780 for the assessment year 1990-91. the appellant had claimed a development allowance of rs. 12,27,532 under section 33a. the assessing authority disallowed the said claim of the appellant for lack of certificate from the tea board in form no. 5 as required under section 33a read with rule 8a of the income-tax rules. the assessing authority also made an adjustment under section 143(1)(a) of the act.3. the appellant preferred an appeal before the commissioner of income-tax (appeals) and the appellate authority granted the relief to the petitioner by deleting the additional tax charged under section 143(1a) of the act and setting aside the disallowance of development allowance. the revenue, thereafter, preferred an appeal before the income-tax appellate tribunal in i. t. a. no. 217 (gau) of 1996 and vide impugned order, the tribunal held that the appellant is entitled to development allowance for the amount for which certificate in form no. 5 is subsequently furnished. the tribunal, however, held that the assessing authority was right in resorting to the provisions of rule 143(1)(a) to levy additional tax.4. the substantial questions of law raised before us are:(1) whether the provisions of section 33a read with rule 8a are mandatory or directory in nature ?(2) whether, on the facts and circumstances of the present case, the assessing authority was justified in invoking the provisions of sections 143(1)(a) and 143(1a) of the act ?5. dr. saraf, learned senior counsel appearing for the appellant, has submitted that the impugned order passed by the tribunal is contradictory. the appellant had filed the certificate in form no. 5 at the time of assessment wherein the required certificate was given by the tea board for a sum of rs. 9,52,964 and the tribunal had allowed adjustment of the said amount towards development allowance under section 33a of the act. although the appellant had claimed a higher amount of rs. 12,27,532, in view of the certificate, the appellant is entitled to development allowance to the tune of rs. 9,52,964 as mentioned in the certificate. the appellant has no grievance on that count. it is, however, submitted that submission of the certificate in form no. 5 at a subsequent stage and not along with the return has been accepted by the tribunal for the purpose of providing relief under section 33a of the act, but at the same time, the tribunal has held that the provisions of section 143(1)(a) apply, which according to the appellant, is ex facie illegal.6. under section 33a of the act, the development allowance is available to the assessee subject to the fulfilment of the conditions mentioned therein and the conditions have been provided under rule 8a.7. rule 8a(d) provides that the other conditions referred to in clause (iii) of sub-section (3) of section 33a shall be the following:(d) the assessee shall furnish to the assessing officer along with his return of income for the previous year for which the deduction is claimed, a certificate from the tea board in form no. 5 and a statement of particulars in form no. 5a.8. mr. bhuyan, learned counsel appearing for the revenue has submitted that in view of the language used in section 8, clause (d) of rule 8a, the provisions are mandatory in nature and the assessee is required to submit the certificate from the tea board in form no. 5 along with the return and in the case of its failure to do so, the assessing authority can take recourse to the provisions of section 143(1)(a) of the act.9. the law is more or less settled by the catena of decision of the apex court that the term 'shall' need not in all contexts, circumstances and situations be treated as indicative of a mandatory nature. at times, the word 'shall' may be read as 'may' whereas in some context, the word 'may' may be read as 'shall' and it depends on the intention of the legislature as well as the context in which words are used. a special bench of this court in the case of bijoy kr. choudhury v. state of assam [1992] 2 glr 283 had the occasion to consider the question raised before us and this court held:21. the general rules on the basis of which a provision is to be held to be mandatory or directory are beyond controversy. in the ultimate analysis it is the intention of the legislature or the rule-making authority which has to prevail. the language used in the provision is important but may not be decisive. for example, use of the word 'shall' though ordinarily taken in a mandatory sense, does not necessarily mean that in every case it shall have that effect and the word 'may' cannot always be taken to have been used in the directory sense. the object and the scheme of the statute or the statutory rules must be taken in the consideration. the interpretation must be such as to carry forward the object of the statute ; of course, to the extent it is reflected in a particular provision. no provision is to be regarded in isolation. every provision must be considered in its setting as part of the scheme. a statute is ordinarily enacted to avoid a mischief or to secure benefit. the court must have regard to the mischief sought to be overcome by the state. a statutory provision must ordinarily be interpreted in a manner so as to help the avoidance of the mischief. regard must be had to the object of the particular provision under scrutiny. the inter-connection between the particular provision and the statute as a whole or the object of the statute is relevant. the consequence of regarding a particular provision, as mandatory or directory and the mischievous consequence or inconvenience it may cause in either case must be closely scrutinized for no court will interpret a provision in a manner so as to promote mischief or inconvenience. as observed in dalchand's case where the design of the statute is the avoidance or prevention of public mischief, but the enforcement of a particular provision literally to its letter will tend to defeat that design, the provision must be held to be directory. the provision will be regarded as laying down instructions to those entrusted with the task of discharging statutory duties for public benefit. the court must also be aware that every prescription of a period within which an act must be done, is not the prescription of a period of limitation with fatal consequences if the act is not done within the said period. the court must determine the intention of the legislature or the rule-making authority in prescribing the period before holding it to be mandatory or directory keeping in mind the consequences, which may follow in either case. statutes prescribing the manner in which public officials shall exercise the power vested in them will generally be construed as directory. as a general rule a statute specifying a time limit for performance of an official duty will so far as that time for performance is concerned be understood as having done so merely for convenience or orderly procedure. this is particularly so where the performance of the act has nexus with the interests of the public. the importance of the particular provision in relation to the general object intended to be secured and the mischief, if any, sought to be prevented, and the remedy provided by the act are also to be borne in mind. in final analysis it is the substance which counts and must take precedence over mere from.10. dr. saraf has placed reliance on a decision of the hon'ble kerala high court in the case of cit v. malayalam plantations ltd. : [1976]103itr835(ker) , wherein a similar view was taken by the hon'ble kerala high court and reference was made to maxwell's observations at page 364 in his treatise on interpretation of statutes. the learned author observed:a strong line of distinction may be drawn between cases where the prescription of the act affect the performance of a duty and where they relate to a privilege or power. where powers, rights or immunities are granted with a direction that certain regulations, formalities or conditions shall be complied with, it seems neither unjust nor inconvenient to exact a rigorous observance of them as essential to the acquisition of the right or authority conferred, and it is therefore, probable that such was the intention of the legislature. but when a public duty is imposed and the statute requires that it shall be performed in a certain manner, or within a certain time, or under other specified conditions, such prescriptions may well be regarded as intended to be directory only in cases when injustice or inconvenience to others who have no control over those exercising the duty would result if such requirements were essential and imperative.11. in the case of khub chand v. state of rajasthan : [1967]1scr120 , the apex court observed:the provision is mandatory in terms. doubtless, under certain circumstances, the expression 'shall' is construed as 'may'. the term 'shall' in its ordinary significance is mandatory and the court shall ordinarily give that interpretation to that term unless such an interpretation leads to some absurd or inconvenient consequence or be at variance with the intent of the legislature, to be collected from other parts of the act. the construction of the said expression depends on the provisions of a particular act, the setting in which the expression appears, the object for which the direction is given, the consequences that would flow from the infringement of the direction and such other considerations.12. the provisions of section 33a provide certain reliefs, in the form of allowance, to an assessee, who is engaged in the plantation business. in order to claim the above benefit, the assessee is required to furnish the certificate from the tea board. hence, the question is where the assessee fails to submit the required certificate along with the return, can he be deprived of the benefits the certificate is required to be obtained from another authority, i.e., tea board, over which the assessee has no control and, on the other hand, there is a time limit for filing the return. in such a case, the rigour of the provisions may not be applicable. in our opinion, it should be construed as 'may' and the benefit should not be denied, if the certificate is not filed along with the return. the matter may be given a liberal approach and the benefit may be extended to the assessee, if he succeeds in producing the required certificate at the time of assessment.13. dr. saraf has also drawn our attention regarding special deduction available to the export unit as provided under section 80hhc wherein supporting documents are required to be filed along with the return of income to claim the deductions. the provisions contained in sub-section (4a) of section 80hhc of the act, which are identical to rule 8a are held to be directory in nature by the hon'ble kerala high court in the case of cit v. g. krishnan nair : [2003]259itr727(ker) .14. in the present case, we find that even the tribunal had allowed the benefit to the assessee to the extent of the amount mentioned in the certificate furnished later on by the assessee which goes to show that the tribunal was also of the view that the provisions of rule 8a are directory in nature.15. we, therefore, hold that the above provisions of rule 8a are directory in nature and the benefit of development allowance cannot be denied to an assessee who had failed to file the required certificate along with the return but it filed the same at the time of assessment. there cannot be, however any scope for doubt that filing of the certificate in form no. 5 is a must for getting the benefit under section 33a in view of the provisions of rule 8a.16. now, coming to the second question raised before us we find that in the instant case, the assessing authority invoked the provisions of section 143 as the assessee failed to produce the certificate in form no. 5. clause (iii) of the first proviso to section 143(1)(a) of the act provides that the assessing officer can make an adjustment to the income or loss declared, if on the basis of the information available, the deduction, allowance or relief claimed prima facie is admissible.17. in the case of r.k. gyankishore singh v. asst. cit , the matter related to claim of deduction in respect of interest payable/paid. the deductions were disallowed by the assessing authority on the ground that though interest was payable, it is not paid by the assessee. this court observed that the question whether interest was paid or not is required to be resolved by the assessing officer on the basis of the materials to be produced by the assessee and such action can be undertaken under section 143(2) of the act and not under section 143(1)(a) of the act.18. a similar view was taken by the division bench of the delhi high court in the case of s.r.f. charitable trust v. union of india [1992] 193 itr 95. the hon'ble delhi high court held (headnote):the conclusion that the claim of the assessee is inadmissible must, in other words, flow from the return as filed. no power is given to the assessing officer to disallow a claim for the reason that there is no proof in support of the claim made by the assessee. only where it is evident from the return as filed, along with the documents in support thereof, that a claim of the assessee is inadmissible can an adjustment under clause (iii) to the first proviso to section 143(1)(a) be made. if proof in support of the claim is not furnished by the assessee then, for lack of proof, no disallowance or adjustment can be unilaterally made. the only option which is open to the assessing officer in such a case is to require the assessee to furnish proof. this is also evident from the fact that, except for the documents specified, the assessee is not required to file the entire books of account or other documents, and it is not the law that, in support of a claim made in the return for deduction or non-taxability of a receipt, all the proof available and original documents must be filed along with the return. the stage of furnishing of the proof is reached as and when proof is demanded by the assessing officer on a notice under section 143(2) being issued. if no proof in support of the claim is available with the assessing officer on the return, accounts or documents filed by the assessee, he can issue a notice under section 143(2); but he cannot unilaterally make a disallowance by seeking to invoke the provisions of the first proviso to section 143(1)(a).19. we, therefore, hold that an adjustment under section 143(1)(a) can only be made where the claim, prima facie, is inadmissible and not in the cases, where proof is required to establish the claim.20. coming to the facts of the case, we find that the required certificate in form no. 5 from the tea board was later on submitted and it was accepted by the tribunal to the extent of the amount mentioned therein and as such the provisions of the first proviso to section 143(1)(a) were not attracted in the present case.21. the assessee is entitled to claim deduction to the tune of rs. 9,52,966 only and the assessee is not liable to pay additional tax under section 143(1)(a).22. the appeal stands disposed of as above.

Judgment:

P.G. Agarwal, J.

1. This is an appeal under Section 260A of the Income Tax Act, 1961 (for short 'the Act'), preferred by George Williamson (Assam) Ltd. (hereinafter referred to as the 'appellant').

The facts

2. The appellant-company filed its return of income on December 31, 1990, showing a total income of Rs. 4,95,23,780 for the assessment year 1990-91. The appellant had claimed a development allowance of Rs. 12,27,532 under Section 33A. The assessing authority disallowed the said claim of the appellant for lack of certificate from the Tea Board in Form No. 5 as required under Section 33A read with Rule 8A of the Income-tax Rules. The assessing authority also made an adjustment under Section 143(1)(a) of the Act.

3. The appellant preferred an appeal before the Commissioner of Income-tax (Appeals) and the appellate authority granted the relief to the petitioner by deleting the additional tax charged under Section 143(1A) of the Act and setting aside the disallowance of development allowance. The Revenue, thereafter, preferred an appeal before the Income-tax Appellate Tribunal in I. T. A. No. 217 (Gau) of 1996 and vide impugned order, the Tribunal held that the appellant is entitled to development allowance for the amount for which certificate in Form No. 5 is subsequently furnished. The Tribunal, however, held that the assessing authority was right in resorting to the provisions of Rule 143(1)(a) to levy additional tax.

4. The substantial questions of law raised before us are:

(1) Whether the provisions of Section 33A read with Rule 8A are mandatory or directory in nature ?

(2) Whether, on the facts and circumstances of the present case, the assessing authority was justified in invoking the provisions of sections 143(1)(a) and 143(1A) of the Act ?

5. Dr. Saraf, learned senior counsel appearing for the appellant, has submitted that the impugned order passed by the Tribunal is contradictory. The appellant had filed the certificate in Form No. 5 at the time of assessment wherein the required certificate was given by the Tea Board for a sum of Rs. 9,52,964 and the Tribunal had allowed adjustment of the said amount towards development allowance under Section 33A of the Act. Although the appellant had claimed a higher amount of Rs. 12,27,532, in view of the certificate, the appellant is entitled to development allowance to the tune of Rs. 9,52,964 as mentioned in the certificate. The appellant has no grievance on that count. It is, however, submitted that submission of the certificate in Form No. 5 at a subsequent stage and not along with the return has been accepted by the Tribunal for the purpose of providing relief under Section 33A of the Act, but at the same time, the Tribunal has held that the provisions of Section 143(1)(a) apply, which according to the appellant, is ex facie illegal.

6. Under Section 33A of the Act, the development allowance is available to the assessee subject to the fulfilment of the conditions mentioned therein and the conditions have been provided under Rule 8A.

7. Rule 8A(d) provides that the other conditions referred to in Clause (iii) of Sub-section (3) of Section 33A shall be the following:

(d) the assessee shall furnish to the Assessing Officer along with his return of income for the previous year for which the deduction is claimed, a certificate from the Tea Board in Form No. 5 and a statement of particulars in Form No. 5A.

8. Mr. Bhuyan, learned Counsel appearing for the Revenue has submitted that in view of the language used in Section 8, Clause (d) of Rule 8A, the provisions are mandatory in nature and the assessee is required to submit the certificate from the Tea Board in Form No. 5 along with the return and in the case of its failure to do so, the assessing authority can take recourse to the provisions of Section 143(1)(a) of the Act.

9. The law is more or less settled by the catena of decision of the apex court that the term 'shall' need not in all contexts, circumstances and situations be treated as indicative of a mandatory nature. At times, the word 'shall' may be read as 'may' whereas in some context, the word 'may' may be read as 'shall' and it depends on the intention of the Legislature as well as the context in which words are used. A Special Bench of this Court in the case of Bijoy Kr. Choudhury v. State of Assam [1992] 2 GLR 283 had the occasion to consider the question raised before us and this Court held:

21. The general rules on the basis of which a provision is to be held to be mandatory or directory are beyond controversy. In the ultimate analysis it is the intention of the Legislature or the rule-making authority which has to prevail. The language used in the provision is important but may not be decisive. For example, use of the word 'shall' though ordinarily taken in a mandatory sense, does not necessarily mean that in every case it shall have that effect and the word 'may' cannot always be taken to have been used in the directory sense. The object and the scheme of the statute or the statutory rules must be taken in the consideration. The interpretation must be such as to carry forward the object of the statute ; of course, to the extent it is reflected in a particular provision. No provision is to be regarded in isolation. Every provision must be considered in its setting as part of the scheme. A statute is ordinarily enacted to avoid a mischief or to secure benefit. The court must have regard to the mischief sought to be overcome by the State. A statutory provision must ordinarily be interpreted in a manner so as to help the avoidance of the mischief. Regard must be had to the object of the particular provision under scrutiny. The inter-connection between the particular provision and the statute as a whole or the object of the statute is relevant. The consequence of regarding a particular provision, as mandatory or directory and the mischievous consequence or inconvenience it may cause in either case must be closely scrutinized for no court will interpret a provision in a manner so as to promote mischief or inconvenience. As observed in Dalchand's case where the design of the statute is the avoidance or prevention of public mischief, but the enforcement of a particular provision literally to its letter will tend to defeat that design, the provision must be held to be directory. The provision will be regarded as laying down instructions to those entrusted with the task of discharging statutory duties for public benefit. The court must also be aware that every prescription of a period within which an act must be done, is not the prescription of a period of limitation with fatal consequences if the act is not done within the said period. The court must determine the intention of the Legislature or the rule-making authority in prescribing the period before holding it to be mandatory or directory keeping in mind the consequences, which may follow in either case. Statutes prescribing the manner in which public officials shall exercise the power vested in them will generally be construed as directory. As a general rule a statute specifying a time limit for performance of an official duty will so far as that time for performance is concerned be understood as having done so merely for convenience or orderly procedure. This is particularly so where the performance of the act has nexus with the interests of the public. The importance of the particular provision in relation to the general object intended to be secured and the mischief, if any, sought to be prevented, and the remedy provided by the Act are also to be borne in mind. In final analysis it is the substance which counts and must take precedence over mere from.

10. Dr. Saraf has placed reliance on a decision of the hon'ble Kerala High Court in the case of CIT v. Malayalam Plantations Ltd. : [1976]103ITR835(Ker) , wherein a similar view was taken by the hon'ble Kerala High Court and reference was made to Maxwell's observations at page 364 in his treatise on Interpretation of Statutes. The learned author observed:

A strong line of distinction may be drawn between cases where the prescription of the Act affect the performance of a duty and where they relate to a privilege or power. Where powers, rights or immunities are granted with a direction that certain regulations, formalities or conditions shall be complied with, it seems neither unjust nor inconvenient to exact a rigorous observance of them as essential to the acquisition of the right or authority conferred, and it is therefore, probable that such was the intention of the Legislature. But when a public duty is imposed and the statute requires that it shall be performed in a certain manner, or within a certain time, or under other specified conditions, such prescriptions may well be regarded as intended to be directory only in cases when injustice or inconvenience to others who have no control over those exercising the duty would result if such requirements were essential and imperative.

11. In the case of Khub Chand v. State of Rajasthan : [1967]1SCR120 , the apex court observed:

The provision is mandatory in terms. Doubtless, under certain circumstances, the expression 'shall' is construed as 'may'. The term 'shall' in its ordinary significance is mandatory and the court shall ordinarily give that interpretation to that term unless such an interpretation leads to some absurd or inconvenient consequence or be at variance with the intent of the Legislature, to be collected from other parts of the Act. The construction of the said expression depends on the provisions of a particular Act, the setting in which the expression appears, the object for which the direction is given, the consequences that would flow from the infringement of the direction and such other considerations.

12. The provisions of Section 33A provide certain reliefs, in the form of allowance, to an assessee, who is engaged in the plantation business. In order to claim the above benefit, the assessee is required to furnish the certificate from the Tea Board. Hence, the question is where the assessee fails to submit the required certificate along with the return, can he be deprived of the benefits The certificate is required to be obtained from another authority, i.e., Tea Board, over which the assessee has no control and, on the other hand, there is a time limit for filing the return. In such a case, the rigour of the provisions may not be applicable. In our opinion, it should be construed as 'may' and the benefit should not be denied, if the certificate is not filed along with the return. The matter may be given a liberal approach and the benefit may be extended to the assessee, if he succeeds in producing the required certificate at the time of assessment.

13. Dr. Saraf has also drawn our attention regarding special deduction available to the export unit as provided under Section 80HHC wherein supporting documents are required to be filed along with the return of income to claim the deductions. The provisions contained in Sub-section (4A) of Section 80HHC of the Act, which are identical to Rule 8A are held to be directory in nature by the hon'ble Kerala High Court in the case of CIT v. G. Krishnan Nair : [2003]259ITR727(Ker) .

14. In the present case, we find that even the Tribunal had allowed the benefit to the assessee to the extent of the amount mentioned in the certificate furnished later on by the assessee which goes to show that the Tribunal was also of the view that the provisions of Rule 8A are directory in nature.

15. We, therefore, hold that the above provisions of Rule 8A are directory in nature and the benefit of development allowance cannot be denied to an assessee who had failed to file the required certificate along with the return but it filed the same at the time of assessment. There cannot be, however any scope for doubt that filing of the certificate in Form No. 5 is a must for getting the benefit under Section 33A in view of the provisions of Rule 8A.

16. Now, coming to the second question raised before us we find that in the instant case, the assessing authority invoked the provisions of Section 143 as the assessee failed to produce the certificate in Form No. 5. Clause (iii) of the first proviso to Section 143(1)(a) of the Act provides that the Assessing Officer can make an adjustment to the income or loss declared, if on the basis of the information available, the deduction, allowance or relief claimed prima facie is admissible.

17. In the case of R.K. Gyankishore Singh v. Asst. CIT , the matter related to claim of deduction in respect of interest payable/paid. The deductions were disallowed by the assessing authority on the ground that though interest was payable, it is not paid by the assessee. This Court observed that the question whether interest was paid or not is required to be resolved by the Assessing Officer on the basis of the materials to be produced by the assessee and such action can be undertaken under Section 143(2) of the Act and not under Section 143(1)(a) of the Act.

18. A similar view was taken by the Division Bench of the Delhi High Court in the case of S.R.F. Charitable Trust v. Union of India [1992] 193 ITR 95. The hon'ble Delhi High Court held (headnote):

The conclusion that the claim of the assessee is inadmissible must, in other words, flow from the return as filed. No power is given to the Assessing Officer to disallow a claim for the reason that there is no proof in support of the claim made by the assessee. Only where it is evident from the return as filed, along with the documents in support thereof, that a claim of the assessee is inadmissible can an adjustment under Clause (iii) to the first proviso to Section 143(1)(a) be made. If proof in support of the claim is not furnished by the assessee then, for lack of proof, no disallowance or adjustment can be unilaterally made. The only option which is open to the Assessing Officer in such a case is to require the assessee to furnish proof. This is also evident from the fact that, except for the documents specified, the assessee is not required to file the entire books of account or other documents, and it is not the law that, in support of a claim made in the return for deduction or non-taxability of a receipt, all the proof available and original documents must be filed along with the return. The stage of furnishing of the proof is reached as and when proof is demanded by the Assessing Officer on a notice under Section 143(2) being issued. If no proof in support of the claim is available with the Assessing Officer on the return, accounts or documents filed by the assessee, he can issue a notice under Section 143(2); but he cannot unilaterally make a disallowance by seeking to invoke the provisions of the first proviso to Section 143(1)(a).

19. We, therefore, hold that an adjustment under Section 143(1)(a) can only be made where the claim, prima facie, is inadmissible and not in the cases, where proof is required to establish the claim.

20. Coming to the facts of the case, we find that the required certificate in Form No. 5 from the Tea Board was later on submitted and it was accepted by the Tribunal to the extent of the amount mentioned therein and as such the provisions of the first proviso to Section 143(1)(a) were not attracted in the present case.

21. The assessee is entitled to claim deduction to the tune of Rs. 9,52,966 only and the assessee is not liable to pay additional tax under Section 143(1)(a).

22. The appeal stands disposed of as above.