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PETITIONER: DEPUTY COMMISSIONER OF COMMERCIAL TAXES

       Vs.

RESPONDENT: H.R. SRI RAMULU

DATE OF JUDGMENT11/01/1977

BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ GOSWAMI, P.K. KAILASAM, P.S.

CITATION:  1977 AIR  870            1977 SCR  (2) 593  1977 SCC  (1) 703  CITATOR INFO :  RF         1987 SC 793  (6,7,8)

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]

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        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,

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       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-

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                     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

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                     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

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                     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