001-NLR-NLR-V-39-COMMISSIONER-OF-INCOME-TAX-v.-SAVERIMUTTU-CHETTY.pdf
THE
NEW LAW REPORTS OF CEYLONVOLUME XXXIX.
1937
Present: Abrahams C.J. and Maartensz J,
COMMISSIONER OF INCOME TAX v. SAVERIMUTTU
CHETTY.
S. C. 195
Income Tax—Appeal to Commissioner—Reference back to assessor and adjust-ment of tax—Additional assessment—Power of assessor to-reassess-—Income Tax Ordinance, No. 2 of 1932, ss. 65, 69 (2), and 75.
Where, on an appeal to the Commissioner of Income Tax by a personaggrieved by an assessment, the Commissioner directed the assessor1under section 69 (2) to make further inquiry, and an agreement wasreached as to the amount at which the assessee was liable to be taxed,—Held, that it was competent to the assessor-to make an additionalassessment under section 65 of the Ordinance in respect of the assessmentof the assessee for the same year.
The proviso to section 75 does not prevent such assessment wherethe amount of the tax has been .adjusted under section 69 (2) of theOrdinance. Such additional assessment may be made in respect of anamount previously reached by some miscalculation or by the deductionof an allowance, which ought not to have been made.
T
HIS was a case stated by the Board of Review under section 74of the Income Tax Ordinance, No. 2 of 1932. The assessee
was assessed for the year 1934-1935, and he appealed to the Commissionerof Income Tax. The Commissioner acting under section 69 (2) of theOrdinance directed the assessor to make further inquiry. As a result theincome tax payable was reduced, the revision being effected by an allow-ance to the assessee of the sum of Rs. 1,749 as earned income allowance.
On March 17, 1936, the assessor made an additional assessment uponthe assessee in respect of the same year of assessment. The assessorcontended that the allowance of Rs. 1,749 as earned income waserroneously made. It was contended for the assessee that the assessorhad no authority to make a further assessment under section 65. TheBoard of Review upheld the contention and, at the request of theCommissioner, stated a case for the Supreme Court.
J.E. M. Obeyesekere, C.C., for the Income Tax Commissioner,appellant.—On the occasion of the first appeal to the Commissionerhe referred the dispute to the assessor for further inquiry under section€9 (2) of Ordinance No. 2 of 1932.. The assessor then came to anarrangement with the assessee whereby an earned income allowance ofRs. 1,749 was allowed in respect of the assessable income. The matterin dispute was therefore not determined on appeal within the meaning
2 ABRAHAMS C.J.—Commissioner of Income Tax v. Saverimuttu Che tty.
of section 75. That being so, the assessor was entitled in the next yearof assessment to make an additional assessment under section 65. Anadditional assessment may be in respect of an allowance previously dis-allowed thus affecting taxable income only. The correspondingsection of the English Act of 1918 is section 125. Our section is widerin its terms Counsel also referred to Williams v. The Trustees of W. W.Grundy ’. Further, section 75 refers to' assessable income only. We arehere concerned with taxable income. .It is not unusual for the provisoto a section to contain what is in effect an additional and a substantiveprovision.
N. Nadarajah, for assessee, respondent.;—An assessor has no power'under section 65 to revise an assessment or to delete an allowance thathas already been given. Therefore an allowance granted under section 16cannot subsequently be disallowed, cf. English Law of Income Tax,section 125, Dowell’s Income Tax Laws at p. 184. The right to make an“ additional ” assessment under section 65 lies in respect only of an itemthat has escaped assessment. There is no power to make an additionalassessment in respect of an allowance previously disallowed.
The power given. by section 65 to make an additional assessment issubject to the provisions of section 75. The words “ determined onappeal ” mean termination of the matter (as here by agreement betweenthe assessor and the assessee).
Obeyesekere, C.C., in reply.
Cur. adv. vult.
May 14, 1937. Abrahams C.J.—
This is a case stated by the Board of Review under section 74 of theIncome Tax Ordinance, No. 2 of 1932. The facts, so far as they arematerial to the consideration of the point of law on which the case has'been stated, are as follows : —M. Saverimuttu Chetty, who may be calledfor convenience the assessee, was originally assessed for Income Taxfor the year of assessment 1934-1935 on the basis that his" assessableincome was Its. 9,413, and his taxable income was Rs. '4,913.' Upon histaxable income he was called upon to pay Rs. 245.65 as income tax.His taxable income was reached by deducting certain allowancesamounting to Rs. 4,500. The assessee appealed against this assessmentto the Commissioner of Income Tax under the provisions of section 69 (1)of the Ordinance, which enables any person aggrieved by an assessmentmade under this Ordinance to appeal to the Commissioner within tWetity-one days from the date of the notice of such assessment. This must bedone by what the section calls a “notice of objection”. The Commis-sioner, acting under section 69(2) of the Ordinance, directed the
assessor to make further inquiry. By virtue of_ the provisions of thissub-section an agreement may be reached as to the amount at. whichthe assessee is liable to be assessed, and this in fact happened, and, as aresult, the assessable income was assessed at Rs. 8,745, the taxableincome at Rs. 2,496, and the income tax payable was reduced to
* IS Tax Cases 271.
ABRAHAMS C.J.—Commissioner of Income Tax vu Saverimuttu Chetty. 3 ■
Rs. 124.80 This revision was effected by an allowance to the assesseeof the sum of Rs. 1,749 as earned income allowance under the provisionsof section 16 (1) (b) of the Ordinance.
On March 17, 1936, the assessor made an additional assessmentupon the assessee, in respect of the same year of assessment, assessinghis assessable income at Rs. 8,866, his taxable income at Rs. 4,366, andthe tax payable at Rs. 218.30. There was no dispute over the increaseof the assessable income. The assessor contended that the allowance ofRs. 1,749 which had been previously made to the assessee as “ earnedincome ” had been erroneously made. It is not our province to considerwhether the error was in fact made or not, as we are limited in a referenceunder section 74 of the Ordinance to points of law.
The assessee again appealed to the Commissioner of Income Taxagainst the additional assessment, on the ground that it was incorrect.The Commissioner dismissed the appeal and upheld the assessment.The assessee thereupon appealed to the Board of Review and contendedbefore that authority that the additional assessment was invalid in lawas the assessor had no power to make the further – assessment. Hecontended that the power given by section 65, which I shall presentlyquote in detail, to make an additional assessment was subject to theprovisions of section 75, which I shall also quote in detail. The' Boardof Review upheld this contention, and at the request of the Commissionerstated a case for the decision of this Court.
Section 65 under which the assessor purported to make the reassessment(I avoid for the moment the expression of “ additional assessment ”since its meaning is disputed by counsel for the assessee) in March, 1936.reads as follows : —
‘ 65 Where it appears to an assessor that for any year of assessmentany person chargeable with tax has not been assessed or has beenassessed at less than the proper amount, the assessor may, withinthe year of assessment or within three years after the expirationthereof, assess such person at ■ the amount or additional amount ofwhich according to his judgment such person ought to have beenassessed, and the provisions of this Ordinance as to notice of assessment,appeal, and other proceedings shall apply to such assessment oradditional assessment and to the tax charged thereunder :
Provided that, where the non-assessment or under-assessmentof any person for any year of assessment is due to fraud or .wilfulevasion, such assessment or additional assessment may be made atany time within ten years after the expiration of that year ofassessment.”
Section 75, which the Board of Review were of the opinion precludedthe assessor from making this reassessment, reads as follows : —
“ 75 Where no valid objection or appeal has been lodged within thetime limited by this Chapter against an assessment as regards theamount of the assessable income assessed thereby, or where the amountof.the assessable income has been agreed to under section 69 (2), orwhere the amount of such assessable income has been ' determined
4 ABRAHAMS C.J.—Commissioner of Income Tax v. Saverimuttu CHetty.
on objection or appeal, the assessment as made or agreed to or deter-mined on appeal, as the case may fee, shall be final and conclusive forall purposes of this Ordinance as regards the amount of .such assessableincome: Provided that nothing in this Chapter shall prevent anassessor from making an assessment or additional assessment forany year of assessment which does not involve reopening any matterwhich has been determined on appeal for the year.”
Crown Counsel submits, first of all, that assuming this is an additionalassessment; and he contends that it is, and indeed the Board of Reviewregarded it as such although counsel for the assessee now disputes thatit is, this is not a matter which had been determined on appeal in termsof the proviso to section 75. He points out that in the body of thesection there is a reference, first of all, to an agreement as to the amountof the assessable income under section 69 (2), and secondly to thedetermination of the amount of such assessable income on objectionor appeal, and therefore in view of the fact that there was an agreementreached between the assessee and the assessor in respect of the assessmentof taxable income, the matter was adjusted at that stage and certainlycould not have been said to have been determined on appeal. There isnot a shadow of doubt in my mind that that contention, is right. Section69 of the Ordinance contemplates the following procedure wherebyan assessee who has been wrongly assessed in any respect can obtaina redress of his grievance. He can file an objection in writing to the.assessment. This done, the Commissioner may direct an assessorto make further inquiry and the assessor and the assessee may betweenthemselves settle the matter or, in the language of sub-section (2) tosection 69, make the “ necessary adjustment ” as a result of theiragreement. If no agreement is reached, the Commissioner hears theappeal' and decides accordingly. There is therefore a contrast drawn in.the body. of section 75 between an agreement as to the amount of theassessable income and the determination of the assessable income onappeal.
Counsel for the assessee, however, argues that the words “ determinedon appeal ” in the proviso, apply as much to the adjustment on agreementas they do to the decision of the Commissioner on appeal, because theyare all parts of appeal proceedings under section 69 and it is not possibleto arrive at the agreement between the assessor and the assessee untilappeal proceedings have been initiated. Apart from any ordinarygrammatical interpretation of the words “ determined on appeal ”,and in my opinion they obviously mean in their primary significancedecided by an authority adjudicating in the matter ”, it would be anamazing thing if the Legislature should intend to give one meaning to aphrase in the body of the section and another meaning to it in the proviso,so that the expression of the proviso included matters which were con-trasted with it in the body of the section.
Crown Counsel also submits that section 75, on the face of it, refersto assessable income only, whereas the appeal in this case was lodgedin respect of an assessment regarding taxable income. He says that ifthat is so, there is nothing to preclude the assessor from making an
Vanderpoorten v. Peiris. „
5
additional assessment under section 65. Indubitably section 75 refers.to assessable income only, but it is possible that the proviso to thesection extends beyond the mere exception to or qualification of thematters dealt with in the body of the section, which is, of course, theprimary function of the proviso, and may possibly refer also to othermatters connected with assessment, for instance, matters in connectionwith the assessment of taxable income. So that I think this pointhad better be left intact in view of the successful result of Crown Counsel’spreceding argument.
Mr. Nadarajah, for the assessee, raises a fresh point on the meaning ofsection 65. He contends that a proper construction of the expression“ additional amount ” does not authorize the' assessor in making thisreassessment. He submits that the words “ additional amount ” applyto an. item of income which at the previous assessment escaped assess-ment by reason of omission from the assessee’s return or because it hadbeen overlooked by the assessor. I see no reason for interpreting theexpression that way. It seems to me to be sufficiently wide in itsordinary meaning to cover an amount previously reached by somemiscalculation or by the subtraction of an allowance which ought not tohave been made and which by the correction of the error is then augmentedto a proper figure. The use of the expression “ under-assessment ”in the proviso to the section makes that construction -perfectly clear.Incidentally there was no reference to us on this point by the Board ofReview, since that point was not put to the Board when they werecalled upon to adjudicate in appeal, but we are not, of course, precludedfrom considering any point upon which the actual decision of the Boardmight be upheld, no matter what might have been their reasons forarriving at that decision.
In my opinion, on the point of law referred to us, the finding of theBoard of Review was wrong and the matter should now go back for adecision upon the facts. I do not think that this is a case where anyorder should be made as to costs.
Maartensz J.—I agree.
Appeal allowed.