ISMAIL v. COMMISSIONER OF INLAND REVENUE

010-SLLR-SLLR-1981-2-ISMAIL-v.-COMMISSIONER-OF-INLAND-REVENUE.pdf


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ISMAIL
v.COMMISSIONER OF INLAND REVENUE
COURT OF APPEAL.
RANASINGHE, J ABDUL CADER. J. AND VICTOR PERERA. J.C. A. APPLICATION 1390/79.
JULY 17, DECEMBER 8, 9, 10, 1980.
Income Tax Ordinance (Cap. 242)— Inland Revenue Act, No. 4 of 1963— InlandRevenue (Amendment) Laws, Nos. 17 of 1972 and 30 of 1978— Inland RevenueAct, No. 28 of 1979—Principles of interpretation applicable—Procedure ofassessment—Powers and duties of assessor— Additional assessments—Assessor rejectingreturns and accounts—Limitations on such powers—Estimate of income andwealth Meaning of terms “assessable" and "taxable" income—"Assessment" and“notice of assessment"—"Assessment of amount of tax" and "assessment of quarterlyinstalment of tax".
Appeal to Commissioner — Board of Review—Powers of Board—Writ: of Certiorari andProhibition—When does the writ He.
The petitioner, a tax payer, submitted to the Department of Inland Revenue in August,1976, his return for the year of assessment 1975/76. The return related to his income forthe period 1.4.74 to 31.3.75 and was in terms of the auditor's statement disclosing anassessable income of Rs. 88,915 and nett wealth of Rs. 315,599. The quarterly tax onthe self assessment basis had been paid totalling Rs. 36,096. In August, 1977, thepetitioner and his auditors had an interview with the Assessor and by letter dated 10.8.77forwarded a statement disclosing an additional income of Rs. 248,359 and otherinformation with a view to finalising his income tax matters. He also gave an explanationfor the non disclosure of this additional income earlier. Thereafter the petitioner and hisauditors had other interviews with the assessor in January, 1978 and October, 1978.The petitioner made payments towards settling the liability arising from the additionalincome disclosed, but after his interview with the Deputy Commissioner in October,1978 he received no further communication.
Thereafter in 1979 the petitioner received a notice of assessment showing a largeramount of assessable income and wealth than was returned or declared by him. Thenotice was dated 30.3.79 but was posted on 21.4.79 according to the registered coverthat contained the Notice. The petitioner sought from the Court of Appeal a Writ ofCertiorari and/or Prohibition quashing this assessment.
The respondents relied on a copy of a letter dated 4.4.79 allegedly sent by the assessorto the petitioner. This letter said inter alia, "the reasons for rejecting the returns andaccounts hove already been intimated to you . . ." and . . as the assessment for1975/76 became time barred on 31.3.79 I have already made assessments as a protectivemeasure estimating the profit from trades at Rs. 794,230 and nett wealth atRs. 916,099". The respondents were unable to prove that such a letter was sent or togive evidence as to how and when the letter was sent. The respondents also filed anaffidavit which stated, inter alia, that "at these interviews the petitioner was informedthat his return and statement for the .elevant year of assessment will not be accepted".
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After considering the history of the relevant legislation, the effect of the subsequentamendments and the question whether the writ will lie in the instant case.
Held
That the provisions of section 93(2) (of the Inland Revenue Act No. 4 of 1963 asamended) are mandatory and that the provisos in section 94 and section 96C are alsomandatory as relating back to section 93 (2) and are conditions precedent to the makingof assessments of income, wealth and gifts under section 95 and also the making ofassessments of the amount of tax under section 94 and section 96C.
That it is competent to a Court to examine the validity of an assessment or noticeand quash such assessment or notice on substantial grounds where there has been noconformity with or where the same is not according to the intent and meaning of thetaw.
(a) That from the affidavit of the respondent it was clear that the Assessor had notaddressed his mind to the new duties imposed on him by section 93 (2) (b) and section96C (3) and that there was non-compliance with the same.
That at some stage after 31st March, 1979, the Assessor had realised that the law asamended had imposed a duty on him in regard to the giving of reasons for not acceptingthe returns, and by his letter (of 4.4.79) he was seeking to cover up his failure toperform that duty by adverting to an oral communication of reasons.
That it cannot be said that the Assessor in fact made an assessment of tax in terms ofsection 96C exercising his judgment as he himself states it was done as a protectivemeasure.
That the Assessor had attempted to keep the matter open to make a properassessment later.
That the Assessor had no jurisdiction to make such a tentative assessment in order tocircumvent the law in respect of the prescribed time limit or for future compliance withthe law.
(fl That there has been total non-compliance with the relevant sections of the law.
That the power exercised by the Assessor is not referable to a jurisdiction whichconfers validity, as the non-observance of the mandatory provisions of the Law No. 30of 1978 deprive the Assessor of jurisdiction to issue the notice which he did issue.
That the notice of assessment in question was not a notice sent under section 96C,nor does it purport to be so sent, and there is no indication under what particular sectionof the law the notice was issued.
(a) That the petitioner cannot canvass the validity or legality of these acts of theAssessor by way of an appeal to the Commissioner of Inland Revenue.
That the Board of Review does not have the authority to declare notices sent by anAssessor or proceedings before an Assessor void or to quash them.
That the petitioner was entitled to the Writs applied for.
Held further (Abdul Cader, J. dissenting)
That the rejection of a return and the notice communicating the reasons for notaccepting a return should be an exercise before the actual assessment of income, wealth
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or gifts is made for the purpose of sending the statutory Notice of Assessment referredto in section 95.
Per Abdul Cader, J. (dissenting): "I do not agree that the communication of reasons forrejecting the return should be made at some point of time prior to taxation." (Semble: Itwould be sufficient if the communication is sent with the notice of assessment.).
Cases referred to
Silva v. Commissioner of Income Tax, (19471 1 C.T.C. 336; 36 C.L.W. 46.
Commissioner of Income Tax v. Chettinad Corporation, (1954) 1 C.T.C. 455;55 N.L.R. 553.
Camini Bus Co. v. Commissioner of Income Tax, (1952) 1 C. T.C. 431;54 N.L.R. 97.
Gurmukh Singh v. Commissioner of Income Tax, (1944) I.L.R. (Lahore) 365.
Guillain v. Commissioner of Income Tax, (1949) 1 C. T.C. 361;51 N.L.R. 241.
Jayanetti v. Mitrasena, (1968) 3 C. T.C. 328; 71 N.L.R. 385.
APPLICATION for a Writ of Certiorari and /or Prohibition.
C. Sivapragasam, with Mano Devasagayam, for the petitioner.
S. W. 8. Wadugodapitiya, Deputy Solicitor-General with K. G. Kamalasahayson, StateCounsel, for the respondents.
Cur. adv vult.
January 29, 1981.
ABDUL CADER, J.
The facts are set out in the judgment of Victor Perera, J. Whenthe Legislature amended section 93 and section 96(C) (3) byAmendment Law No. 30 of 1978, it made it obligatory for theassessor "to communicate to the assessee in writing the reasons fornot accepting the return." Section 96 (C) (3) applies to tax payerson self-assessment and 93 to other tax payers. It is agreed thatsection 96 (C) (3) applies to the petitioner. The proviso (d) tosection 96 (C) (3) reads as follows:
"Where an assessor does not accept a return made by anyperson for any year of assessment and makes an assessmenton that person for that year of assessment, he shall communicateto such a person in writing his reasons for not accepting thereturn."
Thus, there is no doubt whatsoever that it is mandatory on theassessor to communicate to the assessee his reasons for notaccepting the return, as in this case where the assessor has notaccepted the return of the petitioner. In fact, the Deputy SolicitorGeneral conceded this.
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The question is at what point of time these reasons should becommunicated to the assessee. I am unable to agree with thesubmissions made by the petitioner's counsel that thiscommunication of reasons should precede the assessment andcommunication of the tax to the assessee. Counsel urged that itis only if the reasons are furnished to the assessee before taxationthat the assessee will have an opportunity to convince the assessorthat the reasons are questionable and thereby persuade theassessor to make a just assessment. But such an interpretation canlead to difficulties. Thus, for instance, if the assessee chooses toappeal against the reasons to the Commissioner, then to the Boardand then to the Court of Appeal and thereafter to the SupremeCourt, the three-year period within which the taxation should bedone could well expire, as in view of the subsequent amendmentto section 96 (C) by 30 of 1978 it may well be possible to arguethat the notice of assessment referred to in section 96 (C) (3)refers to what I have described as a communication of the estimateof the taxable income and wealth.
But apart from this practical difficulty, the amendment lawitself leaves me in no doubt that there is no requirement tocommunicate the reasons for not accepting the return before theassessment of the tax. Section 93 (2) reads as follows:
"Where a person has furnished a return of income, wealthor gifts, the assessor may (a) either accept the return and makean assessment accordingly; (b) if he does not accept the return,estimate the amount of the assessable income, taxable wealthor taxable gifts of such person and assess him accordingly andcommunicate to such person in writing the reasons for notaccepting the return."
I have quoted this section to spotlight the distinction between"estimate" and "assess." Thus, in subsection (a) when the assessoraccepts the return, he makes an assessment accordingly and insubsection (b) if he does not accept the return, he makes anestimate of the assessable income, etc., and proceeds to assess.Therefore, this section makes it clear that "estimate" is distinctand different from "assess"; and that while assessment refers tothe assessment of tax, estimate refers to the prior job that theassessor has to do for the purpose of taxes, namely, deciding theamount of the assessable income, taxable wealth and taxable gifts.Section 96 (C) (3) makes no reference to estimate. It states: "The
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assessor may assess the amount which in the judgment of theassessor ought to be paid by such person." Obviously, this is areference to the tax that the assessee ought to pay and, therefore,the word "assess" in this clause can only refer to the assessment oftax. Proviso (d) which I have quoted earlier is applicable tosubsection (3) and, therefore, the clause "makes an assessment onthat person for that year of assessement" in this proviso can onlymean "an assessment of the amount which in the judgment of theassessor ought to have been paid by such person" occurring insection 96 (C) (3).
Section 96 (C) (3) reads as follows:
"Where, in the opinion of the Assessor, any person chargeablewith any tax …. has paid as the quarterly instalment of thattax….an amount less that the proper amount which he oughtto have paid….the Assessor may assess the amount which inthe judgment of the Assessor ought to have been paid by suchperson and shall by notice in writing require such person to payforthwith the difference between the amount so assessed andthe amount paid by that person."
Provided that (d):
"Where an Assessor does not accept a return made by anyperson for any year of assessment and makes an assessmenton that person for any year of assessment, he shall communicateto such person in writing his reasons for not accepting thereturn."
To my mind, it is clear that what is expected of the assessoris that when he requires the assessee in writing to pay the differ-ence, the assessor is required to communicate in writing to theassessee in addition his reasons for not accepting the return. Twocommunications are to- be made to the assessee by the assessor,one calling upon him to pay the difference in the tax and othergiving reasons why the assessor had not accepted the return. ButI do not agree that the communication of reasons for rejectingthe return should be made at some point of time prior to taxation.I can see nothing in the proviso to warrant such a construction.
In this case, since notice of assessment is dated 30.3.79, althoughthe envelope D1 bears the postal mark "20th April, 1979", I shall
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assume that the notice of assessment was, in fact, issued on30.3.79. The reasons, said to have been posted to the petitioner1R1, bears the date "4th April, 1979". The 1st respondent, 0. M.S. Fernando, has stated in paragraph 6 of her affidavit that thepetitioner was informed by letter dated 4th April, 1979, thus,making it clear that 1R1 was, in fact, dated 4th April, 1979,although it contains on the face of it the word "March" between"4/4" and "1979”.
The petitioner has denied receipt of 1 R1. No evidence has beenplaced before us that this letter was, in fact, posted and, if so,when it was posted and the burden is on the respondent to provethis. I hold that there is no proof that "the reasons for notaccepting the return" has been communicated in writing to thepetitioner. There is a reference to oral communication in 1 R1, buteven assuming that it was done (in fact, there is no affidavit fromRajaratnam, the writer of 1 R1 that he did so) that communicationwill not meet the requirements of the law that the communicationbe in writing. Therefore, the communication on which therespondent can rely is 1R1 itself, but (1) the posting of 1R1 hasnot been proved and (2) it is dated 4.4.79.
The question now is whether it is a peremptory requirement ofthe Law that communication of the reasons should accompanythe notice of assessment of tax. The Deputy Solicitor Generalurged that it was not mandatory on the assessor to communicatethe reasons along with the notice of assessment, to which thepetitioner responded that unless the reasons are known to theassessee, the assessee will not be in a position to appeal within theperiod provided by the law. The Deputy Solicitor referred us tothe proviso to section 97 (1) which reads as follows:
"Provided that the Commissioner, upon being satisfied thatowing to….other reasonable cause, the appellant was preventedfrom appealing within such period, shall grant an extension oftime for preferring the appeal."
He submitted that the failure to communicate the reasons wouldbe "reasonable cause" owing to which the Commissioner wouldreadily grant an extension of time.
I am of the view that where the law specifically casts a dutyon the Commissioner to communicate reasons, the Commissioner
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cannot shirk that duty and avoid responsibility by referring tocertain discretionary powers that the Commissioner has. Theamendments referred to have been made to protect the interestsof the tax payers and, in my opinion, the tax payer has vestedinterests to know the reasons when he receives the notice ofassessment why he had been taxed to pay a sum different fromwhat he had assessed himself on the basis of his own return. Ifthe Commissioner is permitted to delay the communication, itwould not be possible to fix a time limit for such delay. I take theview that when the Commissioner failed to communicate thereasons, he failed to perform a mandatory duty cast on him.
In this case, it has not been proved that such a communicationhas been made in writing to the petitioner, and, therefore, theassessor has failed to perform the statutory duty cast on him tocommunicate the reasons to the assessee.
The next question that arises is whether a notice that requiresthe petitioner to pay an additional tax is invalidated by the failureto communicate the reasons. Section 96 (C) which I have alreadyquoted empowers the assessor to require the petitioner to payforthwith the difference provided that the assessor "shall com-municate to him his reasons for not accepting the return." Itappears to me that the main section is qualified by the provisoand, therefore, where there has been non-compliance with theproviso, notice requiring the petitioner to pay the difference intax becomes void.
Vet another submission made by the petitioner was that theassessor has not exercised his judgment as required by section 96(C) (3). There is a good deal of substance in this contention. Thisis what 1R1 says:
"As assessment for 1975-76 became time-barred on 31.3.79,I have already made the assessment as a protective measureestimating the profits from trade at Rs. 784,230, net wealth atRs. 916,099."
It would appear from these words that the assessor was notexercising his judgment to arrive at a definite figure by way oftaxation, but rather that he was making a rough estimate as a"protective measure" to keep the matter alive for settlement afternegotiation, "as the assessment for 1975-76 became time-barredon 31.3.79."
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In the result, I hold that the petitioner is entitled to an orderquashing the assessment‘issued by the 1st respondent dated 30thMarch, 1979, and costs as fixed by Perera, J.
VICTOR PERERA, J.
This application for writ of certiorari and/or prohibition on theCommissioner of Inland Revenue has raised a very important issuewhich affects the Inland Revenue Department and all persons liableto pay income tax, wealth tax or gifts tax and which requires acareful consideration of the present administrative procedure andmachinery for the assessment of income, wealth or gifts and theassessment of the tax chargeable and the collection thereof in thelight Of the Inland Revenue (Amendment) Law, No. 30 of 1978.
It will therefore be necessary to examine the provisions dealingwith income tax from its inception in this country and the variousamendments in the law from time to time in order to appreciatethe need for, the purpose and effect of the amendments of the lawthat became necessary and to consider whether in that context theamendments embodied in the Law No. 30 of 1978 in somepositive way, had altered the administrative procedures andimposed mandatory duties on assessors in regard to assessmentsand the effect of a non-compliance with such procedures and suchduties. This is the question that arises for decision on thisapplication before us.
The Income Tax Ordinance, No. 2 of 1932 (Cap. 242, RevisedLegislative Enactments) made provision for the imposition andrecovery of income tax only for the first time in this country.Chapter IX of that Ordinance dealt with Returns of Income insections 58 to 67. Chapter X in sections 68 to 71 dealt withAssessments. Section 68(1) empowers an Assessor if he is of theopinion that a person is chargeable with tax to assess him requiringhim to furnish a return. Section 68(2) and (3) are as follows:
"(2) Where a person has furnished a return of income, the
Assessor may either –
accept the return and make an assessment accordingly; or
if he does not accept the return, estimate the amount ofthe assessable income of such person and assess himaccordingly.
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Where a person has not furnished a return of income andthe assessor is of the opinion that such person is chargeable withtax, he may estimate the amount of the assessable income ofsuch person and assess him accordingly."
According to the Shorter Oxford Dictionary 'estimate' meansan 'approximate calculation based on probabilities' and thereforethe 'estimate' becomes the basis of the assessment of the taxableincome. This was the definition adopted by Canakaratne, J. inthe case of Silva v. Commissioner of Income Tax, ! 1) at page 340.
Section 69 of the Income Tax Ordinance provided for additionalassessments and empowered an Assessor, where it appeared that aperson chargeable with tax had not been assessed or had beenassessed less than the proper amount, to assess such person at theamount or additional amount at which according to his judgmentsuch person ought to have been assessed.
From an examination of these sections, it appears to me withoutdoubt that the words assess or assessment there referred to,contemplated the amount of income that had to be assessed eitheron the basis of a return or on the basis of an estimate made by theassessor. This was the first step that had to be taken in order toascertain the assessable income for the purpose of the computationof tax chargeable. The second step was the computation of thetaxable income after the deductions and allowances provided inthe law. "Assessable income" has been defined as the residue ofthe total statutory income after deducting the deductionsprovided in the law and "Taxable Income" has been defined as theresidue of assessable income after deducting the amount of theallowances allowed by law in the Inland Revenue Act.
The next stage was reached when the assessment, arrived ateither on the basis of a return of the assessee, or on the basis ofthe estimate by the assessor and the taxable income goes beforethe Assistant Commissioner and he then notifies the assessee ofthe amount of the assessment and the charge of the tax made.
Section 71 (1) reads as follows:
"An Assistant Commissioner shall give a notice of assessmentto each person who has been assessed stating the amount ofincome assessed and the amount of tax charged."
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According to the procedure that was adopted the form used bythe Assistant Commissioner to give this notice in terms of section71 contained:
details of the assessment of income,
the assessable income,
the taxable income, and
the amount of tax charged.
In the case of the Commissioner of income Tax v, ChettinadCorporation (2) at page 458, Gratiaen, J. with Gunasekera, J.agreeing, pointed out as follows:
"It is important to avoid confusion between requirementscontained in the relevant enactments as to 'an assessment' onthe one hand and 'a notice of assessment',"
and having analysed the procedure that was adopted in the IncomeTax Department in regard to assessments under section 64 andsection 76, which were later amended as sections 68 and 71, statedas follows:
"Section 64 of the Income Tax Ordinance empowers anAssessor to assess every person (as defined in the Ordinance)who in his opinion is chargeable with income tax. The assess-ment so prepared by an assessor is then scrutinized and eitherapproved or amended by an Assistant Commissioner, who indue course signs the assessment, if he is satisfied that, in its finalform, it charges the person to whom it relates with the full taxwith which he should be charged (section 66). Eventuallysection 67 empowers an Assistant Commissioner to issue anotice of assessment to each person who has been assessedstating the amount of income assessed and the amount of thetax charged.
The distinction between assessment and a notice ofassessment is thus made clear, the former is the departmentalcomputation of the amount of the tax with which a particularperson is considered chargeable and the latter is the formalintimation to him of the fact that such an assessment has beenmade."
At page 459, Gratiaen, J. further held that the analogousprocedure ought to be followed by taxing authorities in the casewhere excess profits duty is chargeable.
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The assessor should prepare an assessment, the assessmentshould be scrutinised and signed (after amendment if necessary)by an Assistant Commissioner and thereafter the AssistantCommisioner must issue a notice of assessment. Thus it is clearthat the department acted in stages and that was what the IncomeTax Ordinance clearly provided.
In terms of this Law if the assessor did not accept a return, hemade his own assessment of income and when additional assess-ments of income had to be made he did so ‘according to hisjudgment', but he did not have to indicate any reasons to theassesses and in actual practice, the assessee was at the mercy of anassessor as the estimate could be arbitrary and even capricious.The law had been so framed that it gave an assessee only oneopportunity to question this assessment, that is, if he was aggrievedby the amount of an assessment, he could appeal to theCommissioner to review and revise such assessment in terms ofsection 73 (1) of the Ordinance. The Commissioner could confirm,reduce, increase or annul the assessment and make a determinationon the facts placed before him. The Commissioner then had tomake a determination. In Chapter XI, sections 73 to 80 dealt withappeals. If a person is dissatisfied with the determination of theCommissioner, he could appeal to the Board of Review. At theinquiry at the Board nf Review, an appellant could not urge thegrounds other than those stated by him except with the consent ofthe Board of Review. However, section 77 (4) provided as follows:
"(4) The onus of proving that the assessment as determinedby the Commissioner on appeal or as referred by him undersection 76 (to the Board of Review) as the case may be, isexcessive shall be on the appellant."
The provisions of section 79 put the question of what was meantby the term assessment beyond any doubt as it states as follows:
"Where no valid objection or appeal has been lodged withinthe time limited by this Chapter against an assessment as regardsthe amount of aisessable income assessed thereby or where theamount of the assessable income has been agreed to undersection 73 (2) or where the amount of the assessable income hasbeen determined on objection or appeal, the assessment asmade or agreed to or determined on appeal, as the case may be.
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shall be final and conclusive for all purposes of this Ordinanceas regards the amount of such assessable income."
It was necessary to deal with this aspect of the matter fully asthere appeared to be some confusion during the course of argumentas to what the term 'assessment' referred to, as the term'assessment' had been used in Law No. 17 of 1972 and the LawNo. 30 of 1978 with reference to the amount of the tax in section96 (C). It is significant that a new Chapter XI a was introduced todeal only with the assessment of the quantum of tax.
The Inland Revenue Act, No. 4 of 1963, was introduced toconsolidate the law relating to the imposition of income tax,wealth tax or gifts tax and to make certain consequentialamendments to other written laws. This was the first time thatwealth tax and gifts tax were introduced. The returns of income,wealth and gifts were dealt with in Chapter X; section 81 of ActNo. 4 of 1963, provided that it was the duty of every personchargeable with income tax, wealth tax or gifts tax for any year ofassessment if he had not been required by the assessor undersection 82 to make a return of income, wealth or gifts of that yearto send a return to the Commissioner. Section 82 provided for theAssessor to give notice in writing to any person requiring him tomake a return. This Chapter dealt with the procedure for theAssessor to obtain information in regard to matters set out in thereturn by giving notice in writing to furnish details, books orreceipts and by requiring the parly concerned to attend in personor by an authorised representative for the purpose of beingexamined regarding his income, wealth or gifts. These were allsteps preliminary to making an assessment.
Chapter XI dealt with assessments. Section 93 (1) provided thatevery person who in the opinion of an Assessor is chargeable withincome tax, wealth tax or gifts tax had to be assessed by theAssessor. Section 93 (2) provided that where a person hadfurnished a return of income, wealth or gifts, the Assessor mayeither—
accept the return and make an assessment accordingly;or
if he does not accept the return estimate the amount ofthe assessable income, taxable wealth or taxable gifts ofsuch person and assess him accordingly."
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Section 93 (3) provided that where a person had not furnisheda return of income, wealth or gifts and the assessor is of theopinion that such person is chargeable with tax, he may estimate.the amount of the assessable income, taxable wealth and taxablegifts.
Section 94 provided for an additional assessment by an Assessorof income, wealth or gifts within 6 years if the person concernedhad not been assessed or had been assessed less than the properamount.
These provisions followed the same pattern of administrativeaction under the earlier law—
{1 > the acceptance of the return, the figures submittedforming the basis of the assessment of income, wealthand gifts,
in the absence of a return, an assessment of income,wealth or gifts being made on the basis of an estimateand .
where a person's income, wealth or gifts had not beenassessed or if found to have been under assessed, theassessor could make an assessment of income, wealth orgifts at an amount which according to his judgment suchperson ought to have been assessed.
Under this law too the assessment of the income, wealth andgifts had to be made for the purpose of arriving at the assessableincome, wealth or gifts and thereafter when this was completed,the assessor was obliged in terms of section 95 of the act whichreplaced section 71 of the Ordinance to give notice of theassessment to each person who has been so assessed stating—
the amount of income, wealth or gifts, and
the amount of tax charged.;
The power to send the notice of assessment was given to, anda duty was imposed on, an Assessor and not the Assistant
Commissioner as provided in section 71 of the repealed Ordinance.Counsel for the petitioner pointed out the volume of work hadincreased and more Assessors were appointed and given greater
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powers to perform the functions that had been performed by theAssistant Commissioners.
To my mind it is clear on an analysis of these provisions of theAct No. 4 of 1963 too, that the Assessor's first and primary dutywas to make an assessement of income, wealth or gifts in order toarrive at the assessable income, wealth or gifts. With theassessment as the basis the next step was the determination ofassessable income, wealth or gifts. Then the Assessor computes thetaxable income making the necessary deductions and allowancespermitted. Thereafter he had to fix the tax to be chargedaccording to the rates specified and send the notice of assessmentunder section 95. Thus the assessee received only one notice of theassessment of income, wealth and gifts indicating the assessableincome and taxable income and also the notification to pay thetax so charged. In the meantime he has had no opportunity toknow beforehand whether his return was accepted or rejected orwhst the assessment that was going to be made as forming thebasis of the tax he was made liable to pay.
The assessee could not have challenged the assessment ofincome, wealth or gifts, however arbitrary it may have been beforethe notice of assessment nor was he informed why his return wasrejected and how or why an estimate was substituted in place ofthe figures submitted by him. His only remedy was to appealagainst the amount of the assessment to the Commissioner undersection 97.
This section 97 of the Act, repealed section 73 of the IncomeTax Ordinance in regard to appeals. Section 97 (1) provided for anappeal within 30 days after the notice of assessment. It is- alsoclear that the term 'assessment* referred to in Act No. 4 of 1963only referred to assessment of income, wealth or gifts. Incomputing the term 30 days after the notice, one has to refer tosection 91 (2) which provides that the notice of an assessmentshall be served personally or by being sent by post by a registeredletter and section 94 (b) which provided that a notice sent by postshall be deemed to have been served on the day succeeding the dayon which it would have been received in the ordinary course bypost. At the argument before us it was conceded that the 30 daysperiod after the date of notice was to be construed accordingly.
The Inland Revenue (Amendment) Law, No. 17 of 1972, cameinto operation in December 1972. The administrative machinery
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remained the same-as Chapter XI of Act No. 4 of 1963 wasretained with a few modifications, and the powers of an Assessorto make assessments of income, wealth and gifts in the samemanner as he had done earlier continued and the procedurehitherto followed was maintained.
However, die Legislature appears to have considered a schemefor the speedy recovery of tax during the year of assessment, asunder the earlier law the tax was charged and recovered onlyafter the notice of assessment of income, wealth or gifts was sentunder section 95. Without amending the earlier law in regard toreturns and assessments, provision was therefore made for a personliable to income, wealth or gifts tax to pay the tax due from himin instalments voluntarily without having to wait till he receiveda notice under section 95 and even before he submitted his returnof income, wealth or gifts. With that end in view, it enacted anew Chapter XIa, inserted immediately after section 96. In thisChapter were introduced for the first time provisions dealing withthe "assessnient of the amount of the tax" and the same arecontained in sections 96 (A), 96 (B) and 96 (C). They providefor-
a self assessment of profits, income, nett wealth and
taxable gifts, and
the voluntary payment of the tax so chargeable accordingto the said self assessment.
There was no requirement that a self assessment of profits, income,wealth or gifts should be communicated or forwarded to theassessor. What was required was only the regular payment of thequarterly instalments of tax as computed by the tax payer himselfon the dates specified. The assessment of the incomie, wealth andgifts was known only to the tax payer. Section 96A and section96B made this provision operative only in respect of any year ofassessment commencing from or after 1st April 1972. Theseinstalments were made payable—
notwithstanding anything to the contrary in this Act, and
notwithstanding that no assessment had been made.
The word 'assessment' found in sub-section (B) referred clearly tothe assessment of income, wealth and gifts as provided in the
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earlier Chapter XI. The new sections in no way, displaced thealready existing obligation of a person liable to tax,to send hisreturn in terms of sections 81 and 82 nor did they remove thewide powers of an Assessor to make assessments of income, wealthor gifts as provided in section 93 (1), sub-section 1A (which wasintroduced by this Law) and sub-section-(2) and (3) and in section94.
In this context, it will be necessary to consider the very limitedor restricted scope of the new section 96 (C). This section clearlyand unmistakably gave new powers to an assessor "to make anassessment of the quarterly tax instalments” even ignoring thevoluntary computation of the quarterly tax instalments by the taxpayer and that only "where a person chargeable fails.,to pay thequarterly instalment of tax." The Assessor was empowered wherethere was such a failure alone, to assess the amount that should bepaid. When the Assessor thus assesses the quantum of tax, which ofnecessity would be arbitrary, he had a duty imposed on him tosend a notice in writing requiring such person to pay the tax soassessed forthwith. No duty was cast on the Assessor simultaneouslyto serve a notice of assessment of income, wealth or gifts even ifhe had made an arbitrary estimate for the purpose of thisassessment. The Assessor was permitted to retain that informationto himself and was not obliged to communicate the same to the
t73X pny'BT.
The proviso to section 96 (C) (3) even enabled the Assessor tomake an additional assessment of the quarterly tax. The provisoreads:
"Provided that nothing in the preceding provisions of thissub-section shall preclude an Assessor from making anadditional assessment in respect of a person on whom anassessment under this sub-section is made."
The "assessment" made under this sub-section is only the"assessment of tax" and nothing more.
Section 96 (C) (4) once again refers not to an additionalassessment of income, wealth or gifts, but to the assessment of tnequarterly tax made under sub-section (3). It refers to the noticesin writing in respect of the quarterly tax assessed and providesthat the particulars in the notice shall be deemed the quarterlyassessment of tax, a person ought to have paid.
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Having analysed the limited purpose and scope of the sections,the functions of the assessor under these sections and, in particular,section 96 (C), it is clear to my mind that sub-section (5) had adefinite place and meaning, though the learned Deputy Solicitor-General in the course of his submissions doubted its relevance.This sub-section made it possible for the receipient of a notice ofthe "assessment of the quarterly tax" made under this section toappeal against it in the same manner as an appeal under section97 of the Revenue Law from a notice of assessment under section95. While an additional duty was imposed on an assessor, the taxpayer was simultaneously given an additional right of appeal.
I have therefore come to the conclusion that Chapter XI aintroduced in 1972, provided for and dealt with only the selfassessment and payment of the quarterly instalments of tax on avoluntary basis or on a compulsory basis on an estimated assess-ment of the quarterly tax, only where there was a failure to paythe quarterly tax. It imposed a mandatory duty on the Assessorto issue a notice of such "assessment of tax" in writing and gavethe assessee the right to appeal therefrom notwithstanding that, anassessment of income, wealth or gifts or an additional assessmentthereof, was not made prior to such appeal. The paramountconcern was the speedy collection of tax though the assessment ofincome and wealth may be delayed in the normal course withinthe period of 6 years provided by the Law.
Even after the amendment of the Law in 1972 in regard toincome, wealth or gifts, an Assessor had the power to act arbitrarilyin making the assessment of income, wealth or gifts. An Assessorwas still obliged to make his assessment of income, wealth or giftseither on the basis of the tax payer's returns or on the basis ofan estimate made by him. Thereafter he had a statutory duty toissue the notice under section 95 of the amount of income, wealthor gifts assessed and the tax charged. In my view, even after theamendments brought into operation in 1972, the Assessor had toact under section 93 in regard to accepting of. assessments orarbitrary assessments and additional assessments under section 94.
Before I deal with the changes brought about by the amendmentof the Revenue Law, No. 30 of 1978, I would refer to the boundswithin which an Assessor could have rejected and substituted hisown assessment under section 93 and section 94 of the InlandRevenue Law prior to 1978. The courts have considered the far
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reaching arbitrary powers granted to an Assessor under the existinglaw in several cases and have from time to time commented on theimproper approach made by assessors in exercising those powers.The areas of dispute between an assessor and assessee wouldnecessarily revolve around the reasons of the Assessor for, and thebasis of his making the arbitrary assessment of income or wealth.But the assessee was completely in the dark in regard to thereasons or basis for not accepting the return even when the noticeof assessment was served on him under section 95. An assessee,when he filed his appeal could therefore not formulate his groundsof appeal except in general terms. However, under the provisionsdealing with the,appeal in section 97 (2) he was obliged to set outthe precise grounds of such appeal and necessarily he had toconfine himself to such grounds when the appeal was consideredby the Commissioner.
In the case of Gamini Bus Co. Ltd. v. C. I. T. decided in 1952by the Privy Council {3) Viscount Simon made the followingobservation at page 432:
“He (the assessor) was of course perfectly entitled to do thisaccording to the best of his judgment and it was not necessaryfor him to give his reasons for refecting the appellant's returnor for arriving at his own estimate."
and at page 436:
"Their Lordships cannot consider this part of their judgmentwithout emphasising in the plainest terms that it would bewholly improper to justify the rejection of the appellant'saccounts and the substitution of a higher figure of assessmentmerely because,- in the case of other tax payers in the sameline of business, the conclusion has been reached that theiraccounts were not accurately kept, and that their returnsrequired to be rejected. Each tax payer is, entitled to have hisassessement fixed, if his own return is not accepted, at a figurewhich the taxing authorities honestly believe to be proper inhis individual case, and no argument that in this class ofbusiness the figure of return is habitually understated can beused to prove that this happened in his also."
In the case of Gurmuk Singh v. Commissioner of Income Tax,
, which had been referred to at page 426 in the above case the
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Indian Law where the provisions were almost similar wereconsidered and contained the following observations:
"(a) An Income Tax Officer is not bound to rely on suchevidence as is produced by the assessee as he considers tobe false.
He can have recourse to the proviso to section 13 even inthose cases where he rejects the accounts produced bythe assessee on the ground that they are not genuine andthus fail to represent truly his income and profits.
If he proposes to make an estimate in disregard of theevidence, oral or documentary, led by the assessee, heshould in fairness disclose to the assessee the material onwhich he is going to found that estimate.
{d) He is not, however, debarred from relying on privatesources of information which sources he may notdisclose to the assessee at all.
(e) In case he proposes to use against the assessee the resultof any private enquiries made by him, he mustcommunicate to the assessee the substance of theinformation so proposed to be utilised to such an extentas to put the assessee in possession of full particulars ofthe case be is expected to meet and should further givehim ample opportunity to meet it, if possible."
Under the Indian Income Tax Law at the time there was noprovision for communicating reasons for rejecting a return and theCourt set out clearly the guidelines for a Tax Officer when heexercises such wide powers.
In the case of Guillain v. Commissioner of Income Tax (5), theassessee though called upon to furnish returns and to giveinformation before making an assessment, failed to do so.Thereupon acting under these sections, the Assessor proceeded toassess him "at the additional amount at which, according to hisjudgment, such person ought to have been assessed." The SupremeCourt held that in as much as the onus was upon the assessee todisplace the assessment, the assessee took great responsibility innot producing material which would undoubtedly have been ofgreat value for the purpose of forming the assessor's opinion. Inthe circumstances, the Court held that the assessor was not bound
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97
by strict rules of evidence and was entitled to make an assessmentaccording to his judgment
This case was considered in the case oiJayanetti v. Mitrasena[6),and Weeramantry, J. held:
"No doubt assessors, in view of the amplitude of thediscretion vested in them under section 69, and the far reachingconsequences of additional assessments which they make, willhave prominently before them the principles of justice and fairplay which must underline the exercise of so wide a discretion,
As has been observed in regard to additional assessments,
under the English Acts, legal evidence is not necessary as apreliminary to an additional assessment but there must beinformation before the inspector 'which would enable him,acting honestly to come to the conclusion' that such a stateof facts exists."
Up to 1978, therefore, the position was that an Assessor couldunder the law act arbitrarily though he was expected to actaccording to the principles of justice and fair play, honestly tocome to a conclusion on the basis of existing material and toexercise his judgment with responsibility. When the Assessor didform such a judgment, the burden is shifted on the assessee todisplace the assessment he had decided to make, according to hisjudgment. Bui. still as the law stood, the tax payer was given noopportunity to know beforehand the reasons for not accepting areturn or the basis of an estimate made against him rior had hean opportunity of setting out the grounds of an appeal precisely,if he decided to lodge an appeal.
Counsel for the petitioner referred us to the Budget Speech ofthe Minister of Finance, made on the 15th November, 1977, inwhich he indicated his proposals to amend the law in regard, toestimated assessments. This becomes relevant to understand themischief at which the Act was directed and not for the purpose ofinterpreting the amending Act. It was proposed to make provisionby which, where an assessor does not accept a return made by atax payer, he will conduct an inquiry and issue an order givingreasons for rejection of a return and for estimating a tax payer'sincome. In regard to the time limit for making assessments, theMinister had proposed the 6 years limit should be reduced to3 years as a tax payer should not be kept in abeyance as to
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whether his returns have been accepted or not Counsel for thepetitioner argued that the intention of the Legislature in enactingLaw No. 30 of 1978 could be gathered from these proposals.Counsel's contention was that the surrounding circumstances, thestate of the taw as it stood and the remedies suggested are aids tothe interpretation of the law. He contended that there was a clearintention that the act of rejecting a return was meant to be acondition precedent to the tax payer being served with a notice ofassessment under Chapter XI and also a condition precedent tothe exercise of the limited powers given him under Chapter XIa.
Counsel for the petitioner contended that it was the duty of acourt called upon to interpret a statute to ascertain the intentionof the Legislature. He cited, Maxwell, on the Interpretation ofStatutes {12th Edn., p.40) where it was stated that in order tointerpret any amending statute, it is necessary to consider:
how the law stood when the statute to be considered waspassed;
(2> what the mischief was under the old law;
the remedy provided by Parliament to cure the mischief.
He also urged that it was the duty of Judges, called upon tointerpret a statute, "to make such construction as shall suppressthe mischief and advance the remedy." There could be no doubtwhat was the mischief that had to be remedied. The scope of theamendment contemplated when legislation was introduced forconsideration by Parliament is also relevant. A Bill to amend theRevenue Act, No. 4 of 1963, was presented by the Minister in theNational State Assembly on the 7th June, 1978, which waspublished in the Gazette on 30th June, 1978. The statement ofthe legal effect of this bill in regard to sections 93, 94, 96B and96C are set out as follows:
Clause 34: amends section 93 of the principal enactment andand the legal effect of this clause will be to imposea duty on an assessor who rejects a return furnishedby any person to state his reasons for rejecting thereturn.
Clause 35: This clause amends section 94 of the principalenactment and the legal effect of this clause willbe:
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Ismail v. Cammissiontr of Inland Havana* (Victor Parara, J.)
99
to reduce the time limit within which anassessment or additional assessment may bemade under that section on any person inrespect of any year of assessment commencingon or after April 1,1973;
to remove the time limit applicable toassessment of gifts tax; and
to impose a duty on an Assessor who rejects areturn furnished by any person to state hisreasons for rejection the return.
Clause 37: amends section 96(C) of the principal enactmentand the legal effect of this clause will be;
to reduce the time limit within which anassessment or additional assessment may bemade under that section on any person inrespect of any year of assessment commen-cing on or after April 1, 1973;
to remove the time limit applicable toassessment may of gifts; and
to impose a.duty on an Assessor who rejects areturn furnished by any person to state hisreasons for rejecting the return.
After the Bill was tabled and considered, the Inland Revenue(Amendment) Law, No. 30 of 1978, was passed and certified on21st July, 1978. Sections 93 and 94 dealt with the powers of theAssessor to make assessments of assessable income, taxable wealthand taxable gifts and to make additional assessments of income,taxable wealth and taxable gifts. The amended section 93,sub-section (2) imposed a duty on the Assessor who rejected areturn furnished by any person to communicate to such personin writing the reasons for not accepting the return. This sectionclearly dealt with the assessment of income, wealth and gifts, therejection of a return and a communication had to be done beforethe notice of assessment stating the amount of the assessment ofincome, wealth and gifts and the amount of the tax charged issent under section 95. The amending law clearly contemplatedthat the notice communicating the reasons for not accepting of areturn should be an exercise before the actual assessment of
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income, wealth or gifts is made for the purpose of sending thestatutory notice of assessment referred to in section 95. Nouseful purpose would be served if the notices communicating thereasons for non-acceptance of a return are sent simultaneouslyor at any time after the notice of assessment is issued undersection 95. The purpose of communicating the reasons for therejection of a return could only be for the purpose of giving thetax payer an opportunity before he receives the statutory noticeof assessment under section 95, to put the assessee in possessionof fdll particulars of the case he is expected to meet, in orderthat he could assist the Assessor if he does not accept the returnto reconsider his rejection if satisfactory reasons are urged by theassessee before the final assessment is made. It appears to me thatthe learned Deputy Solicitor-General's submissions that thecommunication could be given at any time after the statutorynotice under section 95 or the submission that it could be sentsimultaneously with the statutory notice or within the appealabletime in order to formulate the grounds of appeal to theCommissioner are too far fetched and not what the Legislaturecontemplated. As I understand it, the purpose of the amendmentswas to compel an assessor to make his assessments of income,wealth or gifts whether on the basis of a return or on the basis ofhis estimate expeditiously so that the tax could be assessedwithin the period of 3 years.
The law gives an Assessor a period of three years to examineand investigate a return. In the meantime an assessee keeps onpaying the tax instalments. Therefore a strict compliance withthe mandatory provision of section 93 (2) (b)does not entail aloss to the State in regard to the collection of revenue. The lawexpects an Assessor to act expeditiously to enable the State tocollect the revenue as well.
It is to be noted that section 93(2) (b) is not a proviso. It is asubstantive part of the section which imposes a duty on anAssessor to communicate reasons in writing for not accepting areturn. Therefore there could be no doubt whatsoever that it wasa condition precedent to making his assessment after suchcommunication.
The substantive provision contained in section 93 (2) (b) hasbeen repeated as a proviso in section 94 in regard to additionalassessments. Section 94 also deals with assessments of income,
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101
wealth and gifts. But the proviso relates to the. assessment ofincome tax, wealth tax or gifts tax restricting the said exercisein point of time and making it conditional that there should havebeen a consideration of a return, which if not accepted, had to befollowed by a written communication of reasons for not acceptingthe return. The reference in section 96(C) to what had to be doneunder section 93(2) clearly indicates that in the performance ofduties imposed on an Assessor under section 94 and section 96 (C)there should a compliance with the substantive provision of thelaw contained in section 93(2){b). The inclusion of proviso96(C) (d) was a re-affirmation of the imperative duty imposedunder section 93 (2) {b).
Section 94 proviso (a) states that no assessment of income taxor wealth tax or gifts tax shall be made:
in respect of any year of assessment prior to April 1,1972 after 6 years;
in respect of the years of assessment commencing fromApril 1, 1972, April 1, 1973 and April 1, 1974, after
March 31, 1979; and
in respect of any year on or after April 1, 1975, after3 years.
This would necessarily mean that the assessment of income,wealth or gifts had to be done under section 94 prior to theassessment of the tax as contemplated by this proviso. The taxingprocess provided for, under this proviso before certain fixed dates,could not take place without a proper and valid assessment ofincome, wealth or gifts prior to taxing. For there to be a properand valid assessment, the condition precedent referred to inproviso (c) had to have been observed. The proviso (c) circumscribesthe jurisdiction of the assessor and does not permit him to makean assessment of income, wealth or gifts tax, where he had notcommunicated in writing his reasons for not accepting the return.What he is obliged to communicate is not the assessment of taxbut the reasons for not accepting .iiie return ot income, wealthor gifts.
The learned Deputy Solicitor-General when questioned as to theeffect of an Assessor ignoring any of the clauses in proviso, (a), inmaking an assessment and making assessment of tax after the
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prescribed time, in this case after 31st March, 1979, quitecorrectly conceded that such an assessment was illegal or void andliable to be quashed by Court. The Assessor had no jurisdictionto make an assessment of tax after that date, for the relevantperiod, unless the tax payer came within proviso (6). In thisinstant case no claim was made that the Assessor purported toact under these provisos.
Counsel for he petitioner contended that a non-compliancewith the duties referred to in proviso (c) as vyell as the making ofany assessment of tax after the prescribed date would render anassessment illegal or void as there was a total lack of jurisdiction.If this is the resulting position under section 94 as amended, thesame situation will arise if the provisos to section 96(C) (3)(d)were not complied with.
In section 94, the proviso is only a qualifying proviso. Theeffect of a qualifying proviso, according to the ordinary rules ofconstruction, is to qualify something enacted therein, which butfor the proviso would be within it (Craies on Statute Law, 7thEdn. p.218).
In regard to the effect of a proviso, it will be useful to refer tothe rules of interpretation discussed in texts dealing with theInterpretation of Statutes. In regard to provisos, the general rule isclear, namely,
' " Compliance iyvith a proviso taken by itself renders it necessarythat certain steps had to be done earlier in order that theoperation of the earlier part of the section could becomeoperative".
Maxwell in The Interpretation of Statutes (12th Edn.) at page190 states as follows:
"If the language of the proviso makes it plain that it wasintended that the proviso was to have an operation moreextensive than that of the provision which it immediatelyfollows, it must be given such wider effect.
If a proviso cannot reasonably be construed otherwise thanas contradicting the main enactment, then the proviso willprevail on the principle that 'it speaks the last intention of themakers'."
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Ismail v. Commissioner of Inland Revenue (Victor Reran, JJ
103
I am of the view that Chapter XI, that is, sections 93, 94 and 95have to be considered separately as they deal only withassessments of income, wealth or gifts and are the generalprovisions that have to be complied with whether an Assessoracts under Chapter XI a or not.
It will now be necessary to consider Chapter XIa after theamendments enacted in 1978.
I have already examined the provisos to section 96(C) beforethe amended Law No. 30 of 1978, and come to the conclusionthat the provisions in the entire Chapter XIa including section96(C) dealt only with an assessment of the amount of thequarterly tax in the self assessment scheme introduced in 1972.The entire section 96(C) has been re-introduced butsub-section (3) was repealed and a new sub-section (3) wasenacted in its place. This sub-section has deviated considerablyfrom the original sub-section 96(C)(3). The circumstances underwhich the Assessor could act were altered from a failure to pay thequarterly tax to an under payment only. The power an Assessororiginally had to assess when a person has failed to pay the'instalments was removed. It reads as follows:
"(3) Where in the opinion of the Assessor any person charge-able with any income tax, wealth tax or gifts tax has paid asquarterly instalment of that tax for that year of assessment anamount less than the proper amount, the Assessor may assess .the amount which in the judgment of the Assessor ought tohave been paid by such person and shall, by a notice in writingrequire that person to pay forthwith the difference between theamount so assessed and the amount paid by that person."
Therefore it is only when the Assessor has formed the opinion,that the tax payer has paid less than the instalment due, that hecould assess the amount of the instalment.
However, the proviso (a) to the sub-section states that noassessment shall be made of income tax or wealth tax or gifts tax—
(i) in respect of the years of assessment commencing April 1,.1972, April 1,1973 and April 1,1974 after March 31,1979;and
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(ii) in respect of any year of assessment commencing on orafter April 1,1975 after 3 years.
Thus an assessor even where instalments had been under paid,could make no assessment of the amount due as the instalment oftax for the year commencing April 1, 1974 to 31st March, 1975,after 3 years from the end of that year of assessment. He was alsobound by proviso (d) which states:
"(d) where an Assessor does not accept a return made by anyperson for any year of .assessment and makes an assessmenton that person for that year of assessment, he shall communicatein writing his reasons lor not accepting the return."
This proviso necessarily implies that to give validity to anAssessor's action in giving a notice in writing to pay the differencein the tax instalment as assessed by him, the Assessor should havepreviously considered the return of income, wealth or giftssubmitted and either accept it or not or in the event of his nothaving accepted it, the Assessor should have communicated inwriting the reasons for not accepting the return. If the Assessor hadso communicated in writing the tax payer could have maderepresentations and placed facts to support his return or accept anestimate of income by the Assessor if additional facts had becomeavailable to the Assessor to justify his estimate and were madeknown to the tax payer. This was a duty imposed on an Assessorby the amendment as this duty did not exist in the old law.Further this duty had to be exercised before he makes the assess-ment. If he exercises this duty, only then he has the jurisdictionto make an assessment of income, wealth or gifts tax.
If the Assessor had taken the steps so contemplated and thenformed the opinion that though the tax payer had paid instal-ments, he should have paid more, he was obliged by a notice inwriting to require that person to pay forthwith the difference.
At that stage even if a notice of assessment, though validlymade, had not been served on him under section 95, he couldstill have appealed against this notice in writing issued undersection 96 (C) (1), under the provisions of 96 (C) (5) as he hasbeen given the right to appeal against this notification of the
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assessment of tax made under this section, even though he receivedno notice under section 95.
Chapter XI a as amended by Law No. 30 of 1978, is complete andall the conditions precedent necessary for the Assessor to exercisehis powers within the time specified have been provided for andthe tax payer has been protected, in that he has been given a prioropportunity of disputing the rejection of his .return, before theactual final assessment of income, wealth or gifts is made and hehas aiso the right to appeal against the assessment of the tax instal-ment even before the notice of assessment is issued under section95.
The jurisdiction for an Assessor to act under Chapter XIa isclearly defined. If the Assessor had failed to deal with the returnssubmitted under the provisos to section 93 (2) he had no juris-diction to exercise the one and the only function provided for inthis Chapter, namely, the assessment of the amount of taxinstalment payable and the demanding of the payment of thedifference in tax forthwith.
Taking all these matters into consideration, I have arrived at theconclusion that the provisions in section 93 (2) are mandatoryand that the provisos in section 94 and section 96 (C) are alsomandatory as relating back to section 33 (2) and are conditionsprecedent to the making of assessments of income, wealth andgifts under section 95 and also to the making of the assessment ofthe amount of tax under sections 94 and 96 (C). The question thatthis Court has to determine is whether the non-compliance of anyof those provisions which were specially enacted by the amendingLaw No. 30 of 1978 would vitiate and render void suchassessments even if such assessments purport to have been madeunder any of these provisions.
The section dealing with the validity of assessments is section96 which has been retained. This section reads as follows:
"96 (1) No notice, assessment, certificate or Other proceedingpurporting to be in accordance with the provisions of this Actshall be quashed or deemed to be void or voidable for want ofform, or be affected by reason of a mistake, defect or omissiontherein, if the same is in substance and effect in conformitywith or according to the intent and meaning of this Act and if
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the person assessed or intended to be assessed or affectedthereby is designated therein according to common intent andunderstanding.
Without prejudice to the generality of sub-section (1)an assessment shall not be impeached or affected
by reason of a mistake therein as to the name orsurname of the person chargeable, the amount of theincome, wealth or gifts assessed or the amount of taxcharged, or
by reason of any variance between the assessment andthe notice thereof,
if the notice of such assessment is duly served on the person tobe charged and contains in substance and effect the particularsmentioned in paragraph (a) of this sub-section.
On an examination of this section, it is clear that the 'want of aform' or 'mistake' or 'defect' or 'omission' in the assessmentitself or a notice will not effect the validity of the assessment ifthe assessment or notice is in substance and effect in conformitywith or according to the intent and meaning of this law.Therefore, it necessarily follows that it is competent to a Court toexamine the validity of an assessment or notice and quash suchassessment or notice on substantial grounds where there has beenno conformity with or where the same is not according to theintent and meaning of this law.
The significance of the words 'no notice, assessment, certificateor other proceeding purporting to be in accordance with theprovisions of the Act' arises for consideration in this case assubmissions have been made that—
the notice sent on the 21st April, 1979, bearing a date30th March, 1979, does not purport to have been issuedunder any particular section and was out of time andtherefore was without jurisdiction,
that there had been no conformity with the specificmandatory provisions of the amended law and that therewas a total lack of jurisdiction,
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the proceedings taken in this case were not according tothe intent and meaning of the law,
that there had been a breach of the principles of fairnessand natural justice.
In the instant case, the petitioner was admittedly a tax payerand his tax file bore No. 70/6039/24/2, Colombo North RegionalOffice. In or about August 1976 he had submitted his return forthe year of assessment 1975/76, i.e. the period from 1.4.74 to31.3.75 in terms.of the auditor's statement filed with his petitionmarked 'A', which disclosed an assessable income of Rs. 88,915,and a net wealth of Rs. 315,599. The quarterly tax on the selfassessment basis had been paid totalling to a sum of Rs. 36,096(documents B1 to B5).
The petitioner and his auditors had several interviews with theDeputy Commissioner of Inland Revenue and the assessor dealingwith this file in or about August 1977, January 1978 and October1978. The assessor who had dealt with this matter at the inter-views was one K. Rajaratnam. After the interview in 1977, thepetitioner had admittedly forwarded a statement disclosing anadditional income of Rs. 248,359 by letter dated 10.8.77,marked 'C' and other information with a view to finalising hisincome tax matters. He also gave an explanation for the non-disclosure of this additional income earlier. These were proceed-ings presumably under sections 82 and 83.
The petitioner in his affidavit in paragraph 9 has testified thathe had made payments towards settling this additional income sodisclosed. The petitioner complains that after his last interviewwith the Deputy Commissioner and the assessor in October 1978,he received no further communication whatsoever.
The petitioner's position is that being a tax payer who had notonly paid his quarterly instalments for the year 1975/76, but alsoone who had sent his returns, the Assessor should have exercisedhis powers under section 96C (3) if in the opinion of the Assessor,he had paid less than the proper amount payable by him, byassessing the amount which in his judgment ought to have beenpaid. But before he could have exercised this power, he shouldhave considered the returns and sent a notice in writing giving hisreasons if he did not accept the returns. Compliance with section
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96 (C) (3) would have given him jurisdiction to exercise thispower, if the Assessor chose to exercise his powers under thissub-section 96 (C) (3) he should have sent him a notice in writingrequiring him to pay the difference forthwith. The assessment ofthe quarterly tax for the purpose of the notice had to be madebefore March 31, 1979. In this case, there does not seem to havebeen an assessment of the quantum of the quarterly taxinstalments and there is no evidence that the Assessor had exercis-ed his judgment in that particular respect. After amendment tothe Law was effected on the 21st July, 1978, the Assessor had aninterview in October, 1978. But the Assessor had failed to performthe mandatory duty in regard to the return sent in August 1976and the additional return sent in August 1977 of giving his con-sideration to the said returns and deciding whether he accepted ordid not accept the said returns. If he had not accepted the returns,it is obvious that he would have recorded such reasons and thencarried out the duty of communicating to the petitioner thereasons for not accepting his returns in terms of the mandatoryprovisions of section 93 (2) (b). If he had performedthis duty in conformity with or in accordance with the intentand meaning of this law, he was in duty obliged to communicatethe reasons for not accepting the returns. The Assessor hadsufficient time between October 1978 after the last interview andthe 31st March, 1979, to perform the duties imposed on him interms of section 93 (2} b) in regard to the assessment of income,wealth or gifts and also in terms of secion 96 (C) (3) in regard tothe assessment of the quarterly tax.
According to the affidavits of the petitioner the only matterthat was in dispute which transpired at the interviews was inregard to the assessable income. There was no question raisedabout his nett wealth as declared by him in his returns. Anaffidavit has been filed by Mrs. D. M. S. Fernando, the 1strespondent. She admittedly was not the Assessor who dealt withthis particular file nor was she present at the interviews. She hastestified in paragraph 5 of her affidavit not disputing the factsalleged by the petitioner. She does not refer to any notice inwriting giving reasons for not accepting the returns being given tothe petitioner. In the affidavit, however, she states further asfollows:
"At these interviews the petitioner was informed that his
return and statement for the relevant year of assessment wii!
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Ismail v. Commissioner of Inland Revenue (Victor Perera. J.)
109
not be accepted. After investigation into the return and subse-quent statements made by the petitioner, an assessment wasmade on 30th March 1979 of the wealth and income tax forthe year 1975/76/''*
No affidavit was filed by Mr. K. Rajaratnam, the Assessor whodealt with this file and the returns.
It was conceded at the argument by counsel for the respondents,that the 1st respondent personally did not attend to this taxreturn and that the Assessor who dealt with the file was still in thedepartment. In fact he has signed the letter purported to havebeen sent on 4.4.79 (1R1). From this affidavit it is clear that theAssessor had not addressed his mind to the new duties imposed onhim by section 93 (2) (b) and section 96 (C) (3) and that therewas a non-compliance with the same.
The document 'D1' complained of was the notice issued on theusual form used under section 95 marked 'D1' purporting to bearthe 1st respondent's name. The notice 'D' bears a date 30.3.79and in the application No. C. A. 1391 the notice marked 'C' isdated 31.3.79 which is scored off and the date re-typed under-neath as 30.3.79. It is a curious fact that a later date should havebeen entered first and an earlier date entered later. Be that as itmay, the notice 'D' in this case was posted under registered coveronly on the 21st April, 1979, as it evidenced by "D1". The date on"D1" is being challenged in view of 1R1. The respondents reliedon a copy of a letter dated 4.4.79 which was produced as "1R1".The petitioner denied having received such letter and therespondents were unable to prove that such a letter was sent orto give any evidence as to how and when the letter was sent.However, there is the denial by the petitioner of having receivedthis letter in April 1979, though he admits having been sent a copythereof in June 1979 after this application was made to Court.The letters 1R2 and 1R3 sent by the petitioner on 30th April,1979, made no reference to the receipt of such a letter.
The contents of this letter 1R1 are:
"The statement of accounts in respect of the copra businessand the books of accounts are unsatisfactory. The reasons forrejecting the returns and accounts had already been intimatedto you, in particular the price differences paid by B. C. C. inrespect of copra deliveries were not brought into account.
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(198V2S.LR.
As the assessment for 1975/76 became time barred on
I have already made assessments as a protective measureestimating the profits from trades at Rs. 794,230 and nettwealth at Rs. 916,099."
The Assessor who signed the notice of assessment is the 1strespondent and not the Assessor who dealt with this file.
It would appear from the contents of this letter that at somestage after 31st March, 1979, at least the Assessor had realised thatthe law as amended had imposed a duty on him in regard to thegiving of reasons for not accepting the returns, and that by thisletter he was seeking to cover up his failure to perform that dutyby adverting to an oral communication of reasons. The referenceto the assessment having already on 31.3.79 become time barred,that an assessment was made as a protective measure, the factthat there was no proof forthcoming that 1R1 was ever sent andthe fact that the so called assessment was posted only on 21stApril, 1979, all show that the assessor had not acted with acorrect appreciation of the far reaching changes introduced byLaw No. 30 of 1978 which prescribed certain conditionsprecedent to making an assessment of income under section 93and an assessment of the amount of tax under section 96 (C).Document 'D' was not a notice sent under section 96 (C) nor doesit purport to be so sent.
It is necessary that the respondents should realise the specificduties imposed on them as these provisions have been repeated inthe Inland Revenue Act, No. 28 of 1979, which is the Law now inoperation for the year commencing 1st April, 1978, so that theInland Revenue Department could recover the tax found to be duefrom tax payers with expedition as provided in this law withoutjeopardising the rights of the State to collect the revenue due toit. The law gives an Assessor a period of 3 years to examine andinvestigate a return while an assessee keeps on paying the taxinstalments on the specified dates.
In regard to the date of the notice of assessment, it wasconceded that the relevant date is the date of posting as a noticesent by post shall be deemed to have been served on the daysucceeding the day on which it would have been received in theordinary course of business. In this case the notice was admittedlyposted on 21st April, 1979, long after the effective date referred
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Ismail v. Commissioner of Inland Revenue (Victor Peters, J.)
W
to in section 96 (C) (3), namely 31st March 1979. In this case itcannot be considered a valid notice under section 96 (C) (3) oreven a valid notice under section 95 as there has been an absolutenon-compliance with the mandatory provisions of section 93 {2)even if the assessment was made on 30.3.79.
The question whether this Court will issue the Writs applied forunder these circumstances has now to be determined.
The petitioner cannot canvass the validity or legality of theseacts of the Assessor by way of an appeal to the Commissioner ofInland Revenue. The scope of an appeal to the Commissioner hasbeen clearly laid down in the sections dealing with appeals. An appealfrom a determination of a Commissioner to the Board of Reviewis also very narrow in its scope. Further the Board of Reviewdoes not exercise judicial functions, but is merely an instrumentcreated for the administration of the Revenue Law and its work isreally administrative though judicial attributes are called for inthe performance of its duties. It is a body created as an adminis-trative check to see that a tax payer's liability is correctlyascertained. The fact that it could state a case in regard to aquestion of law to the Supreme Court to determine the liability inregard to taxes does not give a Board of Review the authority todeclare notices sent by, or proceedings before an Assessor void orto quash them. It has power to review or annul an assessment ifit is proved that an assessee was not liable to pay the tax charged.The power to quash a notice or proceeding before an Assessor isvested in the courts and therefore this Court must be satisfiedthat the circumstances justify the exercise of such a jurisdiction.
It is clear from the facts above enumerated and on the analysisof the provisions of the law applicable in this case, that there hasbeen a total non-compliance with the mandatory provisions of theLaw No. 30 of 1978. Where a statute requires a thing to be donein a particular manner, without expressly declaring what shall bethe consequence of non-compliance, if the requirement ismandatory as is contemplated in section 93 (2) (6), the omissionis necessarily fatal to its validity.
The petitioner has had no opportunity after October 1978 tochallenge or correct any estimate made by the Assessor before hemade the final assessment. There has been a total non-compliancewith the relevant sections of the law. It cannot be said that the
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(1981) 2 S.LR.
Assessor in fact made an assessment of tax in terms of section96 (C) exercising his judgment as he himself states it was done as aprotective measure, whatever that may mean. Therefore it isobvious that no assessment of tax was made by the exercise of hisjudgment, but the Assessor had attempted to keep it open, as itwere, to make a proper assessment later. The Assessor had nojurisdiction to make such a tentative assessment in order to cir-cumvent the law in respect of the prescribed time limit or forfuture compliance with the law.
In this case the power exercised by the Assessor is not referableto a jurisdiction which confers validity. The non-observance of themandatory provisions of the Law No. 30 of 1978 deprives thejurisdiction of the Assessor to issue the notice which he did issue.Further he does not even indicate under what particular section ofthe law this assessment notice was issued, whether it was undersections 93, 94 or 96 (C) (3) as amended by Law No. 30 of 1978and no attempt was made at the argument of this matter toexplain this procedure.
! am therefore of the view that the notice of assessmentpurporting to bear the date 30.3.79 should be quashed and holdthat the petitioner is entitled to the writs applied for. Thepetitioner will be entitled to costs fixed at Rs. 1,050.
RANASINGHE, J.-l agree.
Application allowed.
Notice of assessment quashed.
S. M. Uwaii,Attorney-it-Law.