M.G. Kalyan and S.G. Kalyan Vs. Income Tax Officer - Court Judgment

Excerpt:
1. these appeals by two different assessees relate to the asst. yr.1990-91. the assessees are partners in the firm of m/s karnataka engineering works. since identical issues are involved in both these appeals, the appeals are being disposed of by this consolidated order for the sake of convenience.2. returns of income, filed by the above two assessees, were processed under section 143(1)(a) of the act originally accepting the share of income as returned. consequent to the order passed in the case of the firm on 27th june, 1991, the share income of the assessees was also revised, adopting the correct share of profit from the firm and order under section 143(1)(c) of the act was passed. in the above order, interest under section 234b of the act was also levied in the case of both the assessees.3. the assessees appealed questioning the jurisdiction of the ao to pass order under section 143(1)(c) and also the levy of interest under section 234b of the act. the cit(a) upheld the order passed by the ao under section 143(1)(c) and also the levy of interest under section 234b, aggrieved, the assessees are in appeal before us.4. shri k.r. prasad, advocate, appearing for the assessees contended that the ao had no jurisdiction to pass an intimation under section 143(1)(c) in this case. for this proposition, he invited our attention to the amendment brought by finance act, 1992 to section 143(1)(c) which was made effective from 1st april, 1993. his contention was that since the words "partner of a firm" and "firm" have been omitted from the provisions of section 143(1)(c), w.e.f. 1st april, 1993, the ao could not have sent intimation under section 143(1)(c) on 11th dec., 1995, revising the intimation under section 143(1)(a) already sent by him earlier. since the intimation under section 143(1)(c) had the effect of increasing the liability of the assessee, it is a substantive law and the ao had no jurisdiction to send an intimation on the date he sent the intimation under section 143(1)(c) of the act. he contended that the statute must confer power to the authority and the assessing authority cannot assume power. therefore, the learned counsel for the assessees contended that the intimations under section 143(1)(c) sent on 11th dec., 1995 are ab initio void. it is also contended that the benefit of section 6 of the general clauses act is also not available to the ao since the amendment has used the word "omission". for this purposes, he placed reliance on the judgment of the supreme court in the case of rayala corporation (p) ltd. and anr. v. director of enforcement air 1970 sc 494 at p. 503. it is further contended that section 143(1)(c) permits substitution only in cases where the communication under section 143(1)(a) in the case of the firm is made after filing of the return by the partners.5. on the other hand, the learned departmental representative, shri n.s. raghavendra, placed strong reliance on the orders of the authorities below. he contended that the amendment brought about by the finance act, 1992, is only procedural and not substantive. therefore, the ao had all the powers to send intimation under section 143(1)(c) on 11th dec., 1995.6. we have very carefully considered the rival submissions. we have also perused the material available on record. the main thrust of the arguments on behalf of the assessee is that since the words "partner of a firm" and "firm" have been omitted from section 143(1)(c) w.e.f. 1st april, 1993, the assessees being partners of a firm, the ao had no jurisdiction to send an intimation under the above section after 1st april, 1993, i.e. after the amendment came into effect. we are unable to agree. it is clearly stated in the foot-note (after mentioning the amendment in the provisions). "this amendment is of a consequential nature". we have also gone through the 'notes on clauses' of finance bill, 1992 [pl. see statute portion of (1992) 194 itr (st) 1 at 159].it has been stated that clause 90 seeks to make amendments of a consequential nature in the it act. it has also been clearly stated therein that sub-clause (c) seeks to make changes in section 143 of the act in view of the changes in the scheme of making the share of a partner in the firm not taxable and instead taxing such income in the hands of the firm and that this amendment will take effect from 1st april, 1993. further, in the memorandum explaining provisions in finance bill, 1992, it has been categorically stated "the proposed amendments will come into effect from 1st april, 1993, and will, accordingly, be applicable for asst. yr. 1993-94 and subsequent assessment years". it is, therefore, clear that this amendment does not debar the ao in making an order of intimation under section 143(1)(c) of the act in regard to assessment years prior to 1993-94 though the amendment has been made effective from 1st april, 1993. this amendment is not applicable to an assessment year prior to 1993-94 and is applicable only to asst. yr. 1993-94 and subsequent years. as pointed out earlier, this amendment has been made as a consequence of doing away with the assessment of share income of partners and instead taxing the same in the hands of the firm itself. if the argument of the learned counsel for the assessee is to be accepted it would lead to the conclusion that the ao will have no jurisdiction in taxing the partners of a firm after 1st april, 1993 for any of the earlier years. this, no doubt, is not the intention of the legislature. as pointed out earlier, the amendment to section 143(1)(c) made effective from 1st april, 1993 is relatable only to the asst. yr. 1993-94 onwards and not to any earlier assessment year. we, accordingly, hold that the ao was within his powers to have sent the intimations under section 143(1)(c) on 11th dec., 1995 to both the assessees and the amendment to section 143(1)(c) does not come in his way. we, therefore, uphold the orders of the authorities below in this regard and reject the ground raised by the assessee challenging the jurisdiction of the ao on this point. 7. we also do not find any merit in the contention on behalf of the assessee that section 143(1)(c) does not permit substitution in this case as the communication in the case of the firm under section 143(1)(a) was prior to the filing of the return by the assessees. if that is the situation, then the assessees, instead of filing return showing provisional share income could have shown share income as per the intimation in the case of the firm.8. coming to the levy of interest under section 234b of the act, it is the contention of the learned counsel for the assessee that the levy should be upto the date of the intimation under section 143(1)(a) and the ao erred in calculating interest till the date of intimation under section 143(1)(c). for this proposition, reliance is placed on the judgment of the supreme court in the case of modi industries ltd. v.cit (1995) 216 itr 759 (sc). on the other hand, the learned departmental representative supported the orders of the authorities below.9. we have considered the rival submissions very carefully. we have also gone through the judgment of the supreme court in the case of modi industries ltd. (supra). no doubt, the above decision related to interest under section 214. as per the supreme court ; "the period, therefore, for which the interest has to be paid remains the same, i.e., the first day of the relevant assessment year to the date of the regular assessment (first assessment)", the above judgment related to payment of interest to the assessee under section 214. but, in our opinion, regarding the date upto which interest is payable to the assessee or is chargeable from the assessee, there should be no different yardsticks. the period should be from the first day of the relevant assessment year to the date of regular assessment/first assessment. in this case, the date of first assessment is the dates on which intimation under section 143(1)(a) has been sent to the assessees. therefore, we hold that interest under section 234b has to be reckoned upto 20th jan., 1992 in the case of m.g. kalyan and upto 22nd nov., 1991 in the case of s.g. kalyan. we, accordingly, direct the ao to charge interest upto the above dates in the case of the two assessees herein. to this extent, the contention of the assessees is accepted.

Judgment:
1. These appeals by two different assessees relate to the asst. yr.

1990-91. The assessees are partners in the firm of M/s Karnataka Engineering Works. Since identical issues are involved in both these appeals, the appeals are being disposed of by this consolidated order for the sake of convenience.

2. Returns of income, filed by the above two assessees, were processed under Section 143(1)(a) of the Act originally accepting the share of income as returned. Consequent to the order passed in the case of the firm on 27th June, 1991, the share income of the assessees was also revised, adopting the correct share of profit from the firm and order under Section 143(1)(c) of the Act was passed. In the above order, interest under Section 234B of the Act was also levied in the case of both the assessees.

3. The assessees appealed questioning the jurisdiction of the AO to pass order under Section 143(1)(c) and also the levy of interest under Section 234B of the Act. The CIT(A) upheld the order passed by the AO under Section 143(1)(c) and also the levy of interest under Section 234B, Aggrieved, the assessees are in appeal before us.

4. Shri K.R. Prasad, advocate, appearing for the assessees contended that the AO had no jurisdiction to pass an intimation under Section 143(1)(c) in this case. For this proposition, he invited our attention to the amendment brought by Finance Act, 1992 to Section 143(1)(c) which was made effective from 1st April, 1993. His contention was that since the words "partner of a firm" and "firm" have been omitted from the provisions of Section 143(1)(c), w.e.f. 1st April, 1993, the AO could not have sent intimation under Section 143(1)(c) on 11th Dec., 1995, revising the intimation under Section 143(1)(a) already sent by him earlier. Since the intimation under Section 143(1)(c) had the effect of increasing the liability of the assessee, it is a substantive law and the AO had no jurisdiction to send an intimation on the date he sent the intimation under Section 143(1)(c) of the Act. He contended that the statute must confer power to the authority and the assessing authority cannot assume power. Therefore, the learned counsel for the assessees contended that the intimations under Section 143(1)(c) sent on 11th Dec., 1995 are ab initio void. It is also contended that the benefit of Section 6 of the General Clauses Act is also not available to the AO since the amendment has used the word "omission". For this purposes, he placed reliance on the judgment of the Supreme Court in the case of Rayala Corporation (P) Ltd. and Anr. v. Director of Enforcement AIR 1970 SC 494 at p. 503. It is further contended that Section 143(1)(c) permits substitution only in cases where the communication under Section 143(1)(a) in the case of the firm is made after filing of the return by the partners.

5. On the other hand, the learned Departmental Representative, Shri N.S. Raghavendra, placed strong reliance on the orders of the authorities below. He contended that the amendment brought about by the Finance Act, 1992, is only procedural and not substantive. Therefore, the AO had all the powers to send intimation under Section 143(1)(c) on 11th Dec., 1995.

6. We have very carefully considered the rival submissions. We have also perused the material available on record. The main thrust of the arguments on behalf of the assessee is that since the words "partner of a firm" and "firm" have been omitted from Section 143(1)(c) w.e.f. 1st April, 1993, the assessees being partners of a firm, the AO had no jurisdiction to send an intimation under the above section after 1st April, 1993, i.e. after the amendment came into effect. We are unable to agree. It is clearly stated in the foot-note (after mentioning the amendment in the provisions). "This amendment is of a consequential nature". We have also gone through the 'Notes on Clauses' of Finance Bill, 1992 [pl. see Statute portion of (1992) 194 ITR (St) 1 at 159].

It has been stated that Clause 90 seeks to make amendments of a consequential nature in the IT Act. It has also been clearly stated therein that Sub-clause (c) seeks to make changes in Section 143 of the Act in view of the changes in the scheme of making the share of a partner in the firm not taxable and instead taxing such income in the hands of the firm and that this amendment will take effect from 1st April, 1993. Further, in the Memorandum explaining provisions in Finance Bill, 1992, it has been categorically stated "The proposed amendments will come into effect from 1st April, 1993, and will, accordingly, be applicable for asst. yr. 1993-94 and subsequent assessment years". It is, therefore, clear that this amendment does not debar the AO in making an order of intimation under Section 143(1)(c) of the Act in regard to assessment years prior to 1993-94 though the amendment has been made effective from 1st April, 1993. This amendment is not applicable to an assessment year prior to 1993-94 and is applicable only to asst. yr. 1993-94 and subsequent years. As pointed out earlier, this amendment has been made as a consequence of doing away with the assessment of share income of partners and instead taxing the same in the hands of the firm itself. If the argument of the learned counsel for the assessee is to be accepted it would lead to the conclusion that the AO will have no jurisdiction in taxing the partners of a firm after 1st April, 1993 for any of the earlier years. This, no doubt, is not the intention of the legislature. As pointed out earlier, the amendment to Section 143(1)(c) made effective from 1st April, 1993 is relatable only to the asst. yr. 1993-94 onwards and not to any earlier assessment year. We, accordingly, hold that the AO was within his powers to have sent the intimations under Section 143(1)(c) on 11th Dec., 1995 to both the assessees and the amendment to Section 143(1)(c) does not come in his way. We, therefore, uphold the orders of the authorities below in this regard and reject the ground raised by the assessee challenging the jurisdiction of the AO on this point. 7. We also do not find any merit in the contention on behalf of the assessee that Section 143(1)(c) does not permit substitution in this case as the communication in the case of the firm under Section 143(1)(a) was prior to the filing of the return by the assessees. If that is the situation, then the assessees, instead of filing return showing provisional share income could have shown share income as per the intimation in the case of the firm.

8. Coming to the levy of interest under Section 234B of the Act, it is the contention of the learned counsel for the assessee that the levy should be upto the date of the intimation under Section 143(1)(a) and the AO erred in calculating interest till the date of intimation under Section 143(1)(c). For this proposition, reliance is placed on the judgment of the Supreme Court in the case of Modi Industries Ltd. v.CIT (1995) 216 ITR 759 (SC). On the other hand, the learned Departmental Representative supported the orders of the authorities below.

9. We have considered the rival submissions very carefully. We have also gone through the judgment of the Supreme Court in the case of Modi Industries Ltd. (supra). No doubt, the above decision related to interest under Section 214. As per the Supreme Court ; "The period, therefore, for which the interest has to be paid remains the same, i.e., the first day of the relevant assessment year to the date of the regular assessment (first assessment)", The above judgment related to payment of interest to the assessee under Section 214. But, in our opinion, regarding the date upto which interest is payable to the assessee or is chargeable from the assessee, there should be no different yardsticks. The period should be from the first day of the relevant assessment year to the date of regular assessment/first assessment. In this case, the date of first assessment is the dates on which intimation under Section 143(1)(a) has been sent to the assessees. Therefore, we hold that interest under Section 234B has to be reckoned upto 20th Jan., 1992 in the case of M.G. Kalyan and upto 22nd Nov., 1991 in the case of S.G. Kalyan. We, accordingly, direct the AO to charge interest upto the above dates in the case of the two assessees herein. To this extent, the contention of the assessees is accepted.