1979 (1) TMI 28 - HC - Income Tax

Court rules Explanation 2 not applicable to reassessment under Income-tax Act

The court concluded that Explanation 2 to Section 153(3) of the Income-tax Act, 1961, was not applicable to the reassessment proceedings. The Tribunal's ... 1961 Act, Act Of 1922, Change Of Law, Exclusion From Rule, High Court, Income Tax Act Issues Involved:1. Applicability of Explanation 2 to Section 153 of the Income-tax Act, 1961.2. Jurisdiction of the Appellate Assistant Commissioner (AAC) under Section 153(3) of the Income-tax Act, 1961.3. Interpretation of Section 297(2)(d)(ii) of the Income-tax Act, 1961.4. Relevance of the Supreme Court decision in ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335.5. Principle of uniformity in interpreting all-India legislations.Detailed Analysis:1. Applicability of Explanation 2 to Section 153 of the Income-tax Act, 1961:The primary issue was whether the Tribunal was correct in holding that Explanation 2 to Section 153 of the Income-tax Act, 1961, was not applicable. The Tribunal had determined that the AAC wrongly applied Explanation 2 to Section 153(3), which led to the reassessment being beyond the prescribed period under Section 153(1). The court noted that Explanation 2 was enacted to mitigate the difficulties caused by the Supreme Court's decision in Murlidhar Bhagwan Das's case, which limited the scope of findings and directions in reassessment proceedings.2. Jurisdiction of the Appellate Assistant Commissioner (AAC) under Section 153(3) of the Income-tax Act, 1961:The AAC had held that the reassessment proceedings were within time by invoking Section 153(3), which exempts certain assessments from the time limits prescribed in Section 153(1). However, the Tribunal found that the AAC exceeded his jurisdiction as the original assessment was under the old Act, and the reassessment proceedings were initiated based on an order under the old Act. The court agreed with the Tribunal, stating that Section 153(3) and its Explanation 2 could only be applied to orders under specific sections of the new Act.3. Interpretation of Section 297(2)(d)(ii) of the Income-tax Act, 1961:The court examined whether Section 297(2)(d)(ii) allowed for the application of the new Act's provisions to reassessment proceedings initiated under the old Act. The court noted that Section 297(2)(d)(ii) provides for the continuation of proceedings under the old Act or the initiation of new proceedings under the new Act, with all provisions of the new Act applying accordingly. However, the court emphasized that this should be limited to machinery provisions and not substantive provisions affecting rights or liabilities.4. Relevance of the Supreme Court decision in ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335:The court discussed the Supreme Court's decision in Murlidhar Bhagwan Das's case, which held that the second proviso to Section 34(3) of the 1922 Act did not save the time-limit for reassessment of income belonging to a different year. The court noted that Explanation 2 to Section 153(3) was enacted to counter this decision. However, the court found that the Explanation could not be applied retrospectively to orders under the old Act.5. Principle of uniformity in interpreting all-India legislations:The court considered the principle of uniformity in interpreting all-India legislations, noting previous decisions where the Bombay High Court followed the views of other High Courts to maintain consistency. However, the court decided not to follow the decisions of the Calcutta and Allahabad High Courts, which had applied the mutatis mutandis rule broadly. The court emphasized that the rule should only be applied where expressly provided or necessarily implied, which was not the case here.Conclusion:The court concluded that Explanation 2 to Section 153(3) of the Income-tax Act, 1961, was not applicable to the reassessment proceedings in question. The Tribunal was correct in holding that the AAC had wrongly applied the Explanation, and the reassessment was beyond the prescribed period. The court answered the reframed question in the affirmative, in favor of the assessee, and awarded costs to the assessee.