Nathmal Tolaram vs Superintendent of Taxes, Dhubri and Another

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 196 of 1958

Decision Date: 18 October 1960

Coram: J.C. Shah, S.K. Das, M. Hidayatullah, K.C. Das Gupta, N. Rajagopala Ayyangar

In the matter titled Nathmal Tolaram versus Superintendent of Taxes, Dhubri and another, the Supreme Court of India delivered its judgment on 18 October 1960. The opinion was authored by Justice J.C. Shah and was joined by Justices S.K. Das, M. Hidayatullah, K.C. Das Gupta, and N. Rajagopala Ayyangar. The petitioner, Nathmal Tolaram, challenged the assessment made by the Superintendent of Taxes, Dhubri, who was also a respondent together with another party. The case is reported in the 1961 volume of the All India Reporter at page 331 and also appears in the 1961 Second Series of the Supreme Court Reporter at page 40. The statutory framework examined by the Court involved the Assam Sales Tax Act 1947, specifically sections 2(12), 16(2), 19, 19A, 32(8), and 34, and dealt with issues concerning reassessment, the jurisdiction of the sales‑tax officer, the advisory power of the High Court, and the limitation period for reassessment proceedings.

The appellants were dealers who were duly registered under the Assam Sales Tax Act 1947. For the accounting period spanning 1 April 1948 to 30 September 1948, they filed a turnover return that comprised sales of all goods in Assam except jute. Despite this filing, the Superintendent of Taxes issued a summary assessment on 30 September 1950 under subsection 4 of section 17 of the Act, demanding tax on quantities of jute that the dealers had dispatched to Calcutta during the same accounting period. This assessment was subsequently confirmed by the Commissioner of Taxes. Seeking clarification, the appellants applied to the Commissioner to refer certain legal questions arising from the assessment to the High Court. The High Court, after review, expressed the opinion that the consignments of jute in question did not constitute “sales” within the meaning of subsection 12 of section 2 of the Act and therefore were not subject to tax. The Court, however, refrained from commenting on whether such transactions could be assessed later if they fell under the Explanation to subsection 12 of section 2.

Following receipt of the High Court’s opinion, the Commissioner directed the Superintendent of Taxes to resolve the case in accordance with that judgment. Accordingly, the Superintendent set aside the original assessment dated 30 September 1950 and, on 30 January 1953, issued a notice to the appellants requiring them to produce the evidence necessary to determine whether the matter fell within the Explanation to subsection 12 of section 2 of the Act. The appellants contended that the Superintendent lacked authority to commence any further assessment proceedings because the notice was issued beyond the three‑year limitation prescribed by section 19 of the Act, which bars reassessment after three years from the end of the assessment period. The Supreme Court held that the High Court, in responding to the referred questions, was exercising an advisory jurisdiction and neither gave nor could give any directive to the sales‑tax authorities on whether to proceed with assessment. The Court affirmed that the High Court’s opinion merely concluded that the transactions were not “sales” as defined in subsection 12 of section 2 and were therefore not taxable. Furthermore, the Court observed that the Commissioner had not issued any notice under section 19A nor exercised his revisional power under section 31; consequently, the Superintendent of Taxes possessed no jurisdiction to initiate fresh reassessment proceedings under section 19 after the expiry of the three‑year period.

The Court observed that the Superintendent of Taxes had neither issued a notice under section 19A of the Act nor exercised his revisional authority under section 31. Having only directed that the case be disposed of in accordance with the judgment of the High Court, the Superintendent possessed no jurisdiction to commence fresh proceedings for reassessment under section 19 after the expiry of three years from the assessment period. The Court distinguished the earlier decision in Commissioner of Income Tax, Bombay Presidency and Aden and others v. Bombay Trust Corporation Ltd., (1936) L.R. 63 A. 408, holding that the present facts did not fall within the scope of that precedent.

The appeal, numbered Civil Appeal No. 196 of 1958, was taken by special leave from the order dated 27 April 1953 of the Assam High Court rendered in Civil Rule No. 66 of 1953. Counsel for the appellant, identified as two members of the bar, represented the sellers, while counsel for the respondents represented the tax authorities. The appellant was a dealer registered under the Assam Sales Tax Act of 1947. For the period from 1 April 1948 to 30 September 1948, the appellant filed a turnover return that included sales of all goods other than jute. The Superintendent of Taxes in Dhubri then issued a summary assessment under sub‑section 4 of section 17 of the Act, requiring the appellant to pay tax on jute dispatched by them to Calcutta during the same period. The appellant appealed this assessment to the Assistant Commissioner of Taxes and subsequently to the Commissioner of Taxes, Assam, but both appeals were dismissed.

Subsequently, the appellant petitioned the Commissioner of Taxes to refer three specific questions arising from the assessment to the High Court of Assam under section 34 of the Act. The questions concerned whether the turnover from (i) 20,515 maunds of jute, (ii) 5,500 maunds of jute, and (iii) 25,209 maunds of jute, as described in the assessment, was taxable under the Act. The High Court answered each question by holding that the consignments did not constitute a sale within the meaning of sub‑section 12 of section 2 of the Act and therefore were not taxable. However, the High Court expressly refrained from opining whether the consignments could later be assessed if they fell within the explanation to sub‑section 12 of section 2. In compliance with section 32(8) of the Act, the Commissioner of Taxes issued an order on 1 August 1952 directing the Superintendent of Taxes to dispose of the case in accordance with the High Court’s judgment. Following that direction, the Superintendent of Taxes undertook the subsequent steps as recorded in the proceedings.

On 30 January 1953 the Superintendent of Taxes issued a notice to the appellants stating that, in light of the decision of the Honorable High Court in Sales‑tax Reference No 3 of 1951, the assessment order dated 30 September 1950 for the return period ending 30 September 1948 had been set aside. The notice directed the appellants to furnish all necessary evidence, including contract documents, account books and other relevant material, so that it could be determined whether the contract of sale involved fell within the scope of the Explanation to sub‑section 12 of section 2 of the Assam Sales Tax Act. By a letter dated 23 March 1953 the appellants requested that the Commissioner of Taxes order the Superintendent not to proceed with the notice. The Commissioner did not issue such an order, and consequently the appellants filed a petition before the High Court of Assam under article 226 of the Constitution. They sought a writ prohibiting the Superintendent from reopening and continuing the assessment of the appellants under the Assam Sales Tax Act, and also a writ quashing the Commissioner’s order dated 1 August 1952. The High Court dismissed the petition summarily. The appellants then appealed the High Court’s decision to this Court, obtaining special leave under article 136 of the Constitution. In answering the questions referred to it, the High Court was exercising an advisory jurisdiction; it did not direct the tax authorities to either proceed with or refrain from assessing the appellants. Instead, it merely expressed the view that the transactions described in the questions did not constitute sales within the meaning of section 2, sub‑section 12 of the Act and therefore were not taxable.

Following the High Court’s opinion, the Commissioner instructed the Superintendent of Taxes to resolve the matter in accordance with the High Court’s judgment. Nevertheless, the Superintendent believed he was empowered to reopen the assessment proceedings and to assess the appellants under the Explanation to section 2, sub‑section 12. In the view of this Court, the Superintendent acted without legal authority in doing so. The Superintendent had previously made an assessment, which was upheld on appeal by the Assistant Commissioner. The High Court had subsequently opined that the transactions subject to that assessment were not liable to tax, and on that basis the Superintendent was correct in vacating the assessment order. However, any further assessment action—such as issuing a notice requiring the appellants to produce evidence, contracts, and account books to determine whether the transactions fell within the Explanation to sub‑section 12 of section 2—required a specific statutory basis. The Superintendent failed to cite any provision authorising the issuance of that notice. It is noted that, under section 19 of the Act, a taxation officer may, upon receiving information that a dealer has failed to register or to file required returns, serve a notice and assess tax within three years of the relevant period; but the appellants were duly registered dealers who had filed their returns, and therefore the power under section 19 could not be invoked.

The Court explained that, under section 19 of the Act, a taxation officer who becomes satisfied from information in his possession that a dealer is liable to tax for a particular period and that the dealer has neither applied for registration nor filed the required return, may, at any time within three years after the end of that period, serve a notice on the dealer. That notice may contain any of the requirements prescribed in sub‑section 2 of section 16, and the officer may then proceed to assess the dealer for the said period. The Court noted, however, that the appellants were already registered as dealers and had duly filed their returns. Consequently, the condition of failure to register and to make a return did not exist, and the power to reassess them could not be invoked on the basis of section 19.

The Court then turned to the provisions of section 19‑A, which confer on the Commissioner a similar power. If the Commissioner is satisfied, based on information in his possession, that turnover from sales of taxable goods has escaped assessment during the return period, he may, within three years after the end of that period, serve a notice on the dealer liable for tax on such turnover. The notice may contain any of the requirements set out in sub‑section 2 of section 16, and the Commissioner may then assess or reassess the dealer for that period. The Court observed that the Commissioner had not issued any notice pursuant to section 19‑A. Moreover, the Commissioner had not exercised his revisional authority under section 31 to set aside the original assessment order. The only action taken by the Commissioner was a direction under section 32, sub‑section 8, to dispose of the case in accordance with the High Court’s judgment. Acting on that direction, the Superintendent of Taxes lacked any authority to reopen the assessment or to require the appellants to produce documentary evidence in order to inquire whether the sales at issue fell within the scope of the Explanation to section 2, sub‑section 12.

The Court further pointed out that the relevant account period, as already established, ran from 1 April 1948 to 30 September 1948. The three‑year limitation period for taking action under section 19 expired before the date on which the notice was served. Accordingly, the Superintendent of Taxes could not lawfully commence fresh reassessment proceedings under section 19 after the expiry of the three‑year period, even if the situation were deemed to be one of failure to register and to file returns. In support of the contention that the Superintendent possessed authority to reassess the appellants based on the High Court’s observations, counsel for the appellants referred to the Privy Council decision in Commissioner of Income Tax, Bombay Presidency and Aden and others v. Bombay Trust Corporation Ltd. The Court noted the citation of that case, in which a foreign company had been assessed by the Income Tax authorities in the name of a resident company acting as its agent under sections 42(1) and 43 of the Indian Income‑Tax Act, 1922.

In the case cited by counsel, the tax authorities had assessed a resident company for profits and gains that the company had received while acting as an agent of a foreign company, pursuant to sections 42(1) and 43 of the Indian Income‑Tax Act, 1922. The matter was brought before the High Court at Bombay under section 66 of the Income‑Tax Act, where the Court held that the assessment was illegal. Following that decision, the Commissioner of Income‑Tax returned the case to the Income‑Tax Officer with a directive to set aside the illegal assessment and to carry out a fresh assessment after conducting any additional inquiry that the Officer considered appropriate. Acting on this directive, the Income‑Tax Officer required the resident company, in its capacity as the foreign company’s agent, to produce the books of account for the relevant assessment year and to furnish any other evidence on which it intended to rely in support of its return. Because the resident company failed to produce the foreign company’s books, the Officer proceeded to make a new assessment under section 23(4) of the Income‑Tax Act, 1922. The resident company then filed a petition under section 45 of the Specific Relief Act in the High Court at Bombay, seeking a refund of the tax paid under the original assessment and requesting the disposal of certain proceedings that it had initiated before the Assistant Commissioner and the Income‑Tax Officer. The High Court ordered that the tax previously paid be refunded and that the assessment be cancelled. The Commissioner of Income‑Tax appealed against the High Court’s order, and the Privy Council observed that the Commissioner was not required to discontinue the proceedings against the resident company acting as agent of the foreign company for that year of assessment. The Council further held that, under section 33(2) of the Income‑Tax Act, the Commissioner possessed the jurisdiction to order further inquiry if he considered such inquiry reasonable and beneficial to the public interest. The Court in the present matter noted that the principle articulated in the Privy Council decision did not apply to the present case. While the High Court, exercising its advisory jurisdiction, had declared the earlier assessment illegal, the Commissioner, under section 33 of the Indian Income‑Tax Act, retained the power to direct additional inquiry and had apparently exercised that power. The Privy Council had rejected the challenge to that exercise of jurisdiction. However, in the present case, the Commissioner of Taxes had not initiated any proceedings under his revisional authority. Instead, he merely instructed the Superintendent of Taxes to implement the High Court’s judgment, and the Superintendent was bound to follow that instruction. The Court indicated that, had the Superintendent been competent—though it refrained from expressing an opinion on that specific question—and had the prerequisite conditions for exercising his jurisdiction been satisfied, he might have been able to reassess the appellants. Nonetheless, the Court found that the statutory period for reassessment had unequivocally expired, rendering any reassessment proceedings barred. Consequently, the Superintendent of Taxes possessed no authority to proceed with a reassessment.

The Court held that the Superintendent of Taxes lacked authority to issue a notice requiring the appellants to produce evidence for an enquiry, because the statutory limitation period set out in the Act had already expired. It noted that, in the Bombay Trust, Corporation case (supra), the Income‑tax Officer had lawfully reopened an assessment after receiving a direction from the Commissioner who was acting under revisional authority. In contrast, the present case involved no such direction issued by a competent authority, and therefore the Superintendent could not rely on section 19 to reassess the income. The Court explained that section 19 could be applied only where the assessee, although registered, had omitted the turnover of a particular commodity, and even then the power to reassess would be unavailable once the limitation period had lapsed. Consequently, the appeal was to be allowed and the judgment of the High Court was set aside. The Court further observed that remanding the matter to the High Court would serve no useful purpose. Accordingly, it directed that a writ be issued to quash the proceedings initiated by the Superintendent of Taxes, Dhubri, by his notice dated 30 January 1953. The appellants were awarded their costs of the appeal, and the appeal was allowed.