SC judgment with retrospective effect can be a valid ground for condonation of delay in appeal filing

In this case the challenge before the Court was to an order dated 29.1.1970 passed by the Commissioner of Income Tax who had dismissed the petitioner’s Revision Application filed under Section 33A and Section 264(1) of the Act on the ground of limitation. The issue pertaied to the Assessment Year 1961-62, 1962-63, 1963-64, for which period the petitioner had incurred certain expenditure, however no deduction was claimed in respect of the same, relying upon the decision of this Court and other High Courts in respect of deductibility of such expenses. The Income Tax Officer had also not allowed this deduction during the course of respective assessment. The assessments were finalised subsequently in the year 1966. The Supreme Court had reversed the view taken by this Court and other High Courts in India and same was reported in the case “India Cements Ltd. Vs. Commissioner of Income Tax” and held that such expenditure must be treated as revenue expenditure and therefore, deduction thereof should be given from the gross income earned by the concerned assessee. The petitioner having received the knowledge of the decision of the Supreme Court, moved the Commissioner of Income Tax by a revision application on 26.4.1966. The Commissioner issued a notice to the petitioner recording as to why the application be not treated as time barred. The petitioner responded to the show cause notice stating that the view taken by the Bombay and other High Courts as regards the allowance of expenditure was upset by the Supreme Court in the case of “India Cements Ltd.” and has finally laid down principles of law in that regard. It was stated that in these circumstances the petitioner had moved the application for condonation of delay. The Commissioner, however, refused to accept the said reasons and condone the delay. It is in these circumstances the Division Bench of Gujarat High Court held that it was the decision of the Supreme Court which really gave a cause of action to the petitioner – assessee to move the Commissioner in revision and hence, the Commissioner was in error in holding that the change of legal position brought about by “India Cements Ltd.” was hardly a valid ground for condoning the delay. It was observed that the decision of the Supreme Court amounted to declaration of law as contemplated under Article 141 of the Constitution of India and that same had retrospective effect. It was held that it was only after the decision of the Supreme Court the petitioner had reason to move the Commissioner in revision with a view to obtain refund. This was accepted to be a sufficient cause.

Gujarat High Court

Karamchand Premchand Pvt. Ltd.

vs

Commissioner of Income-Tax

Date- 06 November, 1973

Equivalent citations: 1975 101 ITR 46 Guj

Author: T Mehta

Bench: B Diwan, T

JUDGMENT – T.U. Mehta, J.

1. The petitioner herein is a private limited company and has approached this court in this petition for obtaining writ of certiorari to set aside the order passed by the respondent No. 1, who is the Commissioner of Income-tax, on January 29, 1970, dismissing the petitioner’s revision application filed under section 33A of the Indian Income-tax Act of 1922 and section 264(1) of the Income-tax Act of 1961, on the ground of limitation. In the alternative, the petitioner has prayed for a similar writ for setting aside the orders of assessment of is income for the assessment years 1961-62, 1962-63, 1963-64 as they have treated the expenditure incurred in connection with the issue of debentures as capital expenditure, to deductible from the gross income earned by the petitioner during the relevant account periods.

2. Short facts of the case which from the background of this petition are as under. For the assessment years 1961-62, 1962-63 and 1963-64 the petitioner is said to have incurred expenditure of the sum of Rs. 88,557, Rs. 4,018 and Rs. 47,339, respectively, on account of stamp, duty, registration charges lowers’ fees, acceptance fees of the bank and miscellaneous expenses in connection with the issue of ventures secured on all the fixed assets of the petitioner-company. The petitioner, relying upon th e decisions of the Bombay and other High Courts, on the question of deductibility of such expenses, did not specifically claim he deduction thereof from; its gross income in the respective yeas. The Income-tax Officer concerned did not allow these deductions during the course of the respective assessments. These assessments were subsequently or rectified on some other points respectively on April 24, 1965, and October 6, 1965. It is an admitted position that the original [assessment for all these three yeas were respectively made on February 25, 1963, February 14, 1964, and March 26, 1964. The expenditure which the petitioner claims to have incurred on account of the above referred charges was disallowed by the concerned Income-tax Officer presumably on the ground that it amounted to capital expenditure and not revenue expenditure, because this was the view taken by the Bombay and other 3 to 4 High Courts in India.

3. The case of the petitioner is that subsequently, in the year 1966, the Supreme Court reversed the above view taken by the Bombay and other High Courts in India, the same is reported as India Cements Ltd. v. Commissioner of Income-tax, and held that such expenditure must be treated as revenue expenditure and, therefore, the deduction thereof should be given from the gross income earned by the concerned assessee. The petitioner contends that after it came to know about this decision of the Supreme Court, it moved the Commissioner of Income-tax who is respondent No. 1 by revision application contemplated by section 33A of the Act of 1922 and section 26A of the Act of 1961. This revision application is found to have been made by the petitioner on April 26, 1966, to the first respondent, who is the Commissioner. The matter lay many on the file of the Commissioner for about 2 year, because the record of the case reveals that it was as late as October 7, 1968, that the the Commissioner issued a notice to the petitioner to show cause in writing on or before October 19, 1968, why the revision application filed by it should not be dismissed as time barred. Both sections 33A and 264 provide for a period of limitation of one year from the date of the assessment and further provide hat delay in preferring revision application under these sections can be condoned by the Commissioner, if he is satisfied that the assessee concerned had sufficient cause in not filing the revision application within the time oprescribed by issued by the Commissioner on October 7, 1968. The petitioner gave reply to this show-cause notice on November 20, 1968, as found by reference to annexure “C” filed along with this writ petition. Therein the petitioner has referred to the view taken by the Bombay and other High Courts on the disputed question as regards the allowance of such expenditure as revenue expenditure. The petitioner has further pointed out that the decision given by the Supreme Court in India Cements Ltd., made a total difference and changed the whole law on the subject and, therefore, it approached the Commissioner by revision application soon after knowing about this decision of the Supreme Court. It is an admitted position that the petitioner in view of these circumstances requested the Commissioner to condone the delay. The Commissioner, however, after hearing the parties, gave his decision on January 29, 1970, refusing to condone the delay. This order is found at annexure “D”. Reference to it shows that the commissioner was of the opinion that the fact that the Supreme Court had taken a different view was not a valid ground for condoning delay in filing the revision application. According to the Commissioner, if the petitioner had any doubt in the matter he should have kept the matter alive by taking appropriate action in good time. For this reason the Commissioner dismissed the revision application filed by the petitioner on the ground of limitation. It is against this order that this writ petition is preferred by the petitioner.

4. As stated above, the contentions raised by the petitioner in this writ petition are two-fold. Its first contention is direction against the Commissioner’s order rejecting its revision application on the ground of bar of limitation and its second contention is directed against the original assessments on the ground that these assessments contain an apparent error of law, inasmuch as the expenditure which ought to have been treated as revenue expenditure, was treated as capital expenditure during the course of the original assessments. According to the petitioner, the decision of the Supreme Court in India Cements Ltd. has rendered the assessment as regards capital expenditure incurred in connection with the issue of debentures bad and illegal at the very inception and since the said assessments were the result of a mistake of law common to both the parties, provisions of section 72 of the Indian Contract Act apply and, therefore, the tax recovery under the said mistake of law should be refunded back to it.

5. Taking the first contention of the petitioner for our consideration, we find that as the Commissioner issued notice calling upon the petitioner to show cause why this revision application should onto be dismissed as barred by limitation, the petitioner requested the Commissioner to condom delay, if any, in view of the fact that the view which was shared by the Bombay and other three to four High Courts in India since last many years, was reversed by the Supreme Court in India Cements Ltd., and hence it was on the date of the petitioner’s knowledge of the Supreme Court that the mistake in question was discovered. The Commissioner refused to condone the delay as stated above.

6. If in this connection a reference is made to the provisions of section 33A of the Act of 1922 and section 264 of the Act of 1961, it will be found that the Commissioner has got powers to admit revision applications made after the expert of the period of limitation of one year provided he is satisfied that the assessee concerned was prevented by sufficient cause from making the application within that period. It follows, therefore, that the only question which arose for the Commissioner’s decision when the petitioner requested for condonation of duly, was whether the petitioner was prevented from making the revision application by any “sufficient cause.” To us it is apparent that before the petitioner knew about the Supreme Court decision in India Cements Ltd., he had no cause to claim refund on the ground that the assessment on the question of deduction of expenditure in question as revenue expenditure was wrong. In fact, such expenditure was consistently treated by the Bombay and other High Courts as capital expenditure for years together. It was as early as 1921 that in In re Tata Iron & Steel Co. Ltd., the High Court relied upon the following observations of Mathew J. in Texas Land and Mortgage Co. v. Holtham :

“The amount paid in order to raise the money on debentures, comes off the amount advanced upon the debentures, and, therefore, is so much paid for the cost of getting it, but there cannot be one law for a company having sufficient money to carry on all its operations and another which is content to pay for the accommodation. This appears to me to be entirely concluded by the decision of yesterday (Anglo-Continental Guano Works v. Bells).”

7. Ever since the decision of the Bombay High Court in In re Tata Iron & Steel Co. Ltd., the High Courts of Kerala, Madhya Pradesh, Calcutta and the Court of the Judicial Commissioner of Nagpur are found to have taken the same view at different times. It is, therefore, apparent that this view prevailed in India at least from the year 1921. The view was taken as settled law and, therefore, it is apparent that the petitioner had no cause whatever to invoke the revisional powers of the Commissioner in order to get the redress in question. In fact, till the Supreme Court gave its decision in India Cements Ltd., the petitioner seems to have accepted the position that such expenditure must be treated as capital expenditure and it was for that reason that the petitioner is not found to have claimed the expenditure as revenue expenditure and is also not found to have pursued his further remedy by way of appeal. The situation, however, changed in a different manner on account of the decision given by the Supreme Court in India Cements Ltd. It is, therefore, obvious that it was this decision of the Supreme Court which really gave cause to the petitioner to move the Commissioner in revision. In our opinion, therefore, the Commissioner in revision. In our opinion, therefore, the Commissioner (the first respondent herein) was palpably wrong in holding that the change of legal situation brought about by a decision of the Supreme Court India Cements Ltd., was hardly a valid ground for cordoning delay.

8. It is obvious that the decision of the Supreme Court in India cements Ltd., amounted to a declaration of law had retrospective effect and rendered the assessment of the expenditure in connection with the debentures illegal, because the assessment was passed on a wrong view that the expenditure in question was capital expenditure. This apparent illegality crept into assessment and become quite apparent only because of the decision of the Supreme court. It was, therefore, only after this decision of the Supreme court that the petitioner had reason to move the Commissioner in revision with a view to obtain refund. The fact that the petitioner did not keep the question alive by preferring appeals also dose not detract form the situation that before the Supreme Court took the different view in India Cements Ltd. The legal position was practically settled. If the petitioner did not keep the question “alive” it was obviously because the real legal poison appeared to be settled and there was no point in pursuing the question any father. Therefore for the purpose of decision whether the petitioner had sufficient cause for not preferring the revision application within time, the fact that it did keep the question alive by preferring appeals, which were likely to prove in functions, did not make any difference.

9. Shri Kaji, who appeared for the respondents, contended that even this court is of the opinion that the petitioner has been able to make out a case of having a sufficient cause for not preferring a revision application in time, there would be no justification for interfering with the decision of the commissioner in a writ application unless it is found that the commissioner has without justification or in excess of jurisdiction vested in him. It is true that the commissioner had the jurisdiction to decide whether the delay in question should be condoned or not. But it is settled that commissioner had the jurisdiction to decide whether the delay in question should be condoned or not. But it is settled that the commissioner, acting under section 33A of the ACT of 1922 or under section 264 of the Act 1961, is acting judicial and if he makes palpable mistake in arriving at a decision by failing to apply the obvious and well recognised principles of law on the subject, this court acting under article 226 of the Constitution would have full justification to interfere with such a decision with a view to set the matter right. In this case, we find that it was the pronouncement of the Supreme Court which made the whole difference if the situation and which gave the cause for moving the commissioner. Therefore, petitioner’s inaction prior to this decision of the Supreme Court was sufficiently explained. Under these circumstances, it was neither reasonable nor judicious to hold that the petitioner had no sufficient cause to explain the delay. In our opinion, therefore, this is eminently a fit case in which the jurisdiction of this court under article 226 of the constitution can be effectively utilised to do real justice.

10. Shri Kaji cent contended that the real remedy for the petitioner was to move the income-tax authorities for rectification in view of the duration of the Supreme Court and not to move the commissioner under section 33A or section 264. It is true that the more appropriate remedy for the petitioner was to undertake proceedings for which the limitation had not yet expired when he moved the Commissioner by preferring revision applications. But it cannot be said that the revision proceeding under section 33A and/or 264 of the Acts of 1922 and 1961 were inappropriate because under these sections the Commissioner has got wide power to pass such orders as he thinks fit. Therefore, it cannot be said proceedings of moving the commissioner under these two sections were totally misconceived.

11. Thus, we are of the opinion that the commissioner ought not to have dismissed the petitioner’s application under section 33A and section 264 of the Acts of 1922 and 1961 on the ground of limitations as the petitioner has been able to show sufficient cause for not filing the same within one year of the original assessment. Therefore the commissioner’s order dated January 29, 1970, as found at annexure “D” is set aside, the delay in preferring revision applications before the commissioner is consigned and the commissioner is directed to proceed further in the matter and to dispose of said revision applications on merits according to law.

12. The learned Advocate-General who appeared on behalf of the petitioner contended that no question of limitation would arise in this case if the principal enunciated in section 17 read together with section 29 of the Indian Limitation Act are born in mind. According to the learned Advocate-General, the Supreme Court has held in Vidyacharan Shukla v. Khubchand Bhagat that section 29(2) of the Limitation Act applies to the proceedings undertaken under special Acts. In this connection the learned Advocate-General tried to distinguish the previous decisions of the Supreme Court in Sha Mulchand & Co Ltd. v. Jawahar Mills Ltd. Bombay Gas Co. Ltd. v. Gopal Bhiva Town Municipal Council, Athani v. Presiding Officer, Labour Court, Hubli and Nityanand M. Joshi v. Life Insurance Corporation of India as well as the decision given by a Division Bench of this court in Commissioner of Income-tax v. Western India Engineering Co Ltd., Since we find that the petitioner should succeed in his first prayer on the question whether the matter would be governed by sections 17and 29 of the Indian limitation Act.

13. We thus find that the petitioner succeeds in obtaining the first relief claimed by it. On the second relief, the learned advocate for the parties addressed to us lengthy arguments relating to the alternative prayer contained for setting aside the original assessment orders on the ground that they are rendered illegal as a result of the decision of the Supreme Court in India Cements Ltd. On behalf of the respondents, Shri Kaji contended that so far as the second prayer is concerned, interference of the High Court under article 226 of the Constitution is not called for because the petitioner itself has not claimed any deduction it its own return on account of the dispute and hence the assessing officer had no occasion to consider the merits of the claim now advanced by the petitioner. Shri Kaji also contended that even otherwise this petition is liable to be dismissed so far as the second prayer is concerned, because of the delay caused in invoking the writ jurisdiction of this court. On behalf of the petitioner, the learned Advocate General was at great pains to show to us that on account of the decision of the Supreme Court in India Cements Ltd the mistake in treating the expenditure in question as capital expenditure has become very apparent and, therefore, that being a common mistake of law committed by both the parties during the course of the original assessments, it is a fit case in which provisions of section of section 72 of the Contract Act would apply. It was pointed out that in such cases the courts in England and the Supreme Court in India have allowed the refund of the amount of tax paid under mistake. Since we have held in favour of the petitioner of point No. 1, and are ordering the Commissioner to proceed with the revision applications preferred by the petitioner after condoning the delay in filing them, we do not think it should be advisable to express any opinion on these contention of the parties.

14. In the result, therefore, this writ application should be allowed. The order of the Commissioner dated January 29, 1970, found at annexure “D” is set aside, the delay in filing the revision applications is condoned and the commissioner is directed to proceed further in the matter and to dispose of all the revision applications preferred by the petitioner on merits.

15. The rule is accordingly made absolute with costs.