TaxTMI 
TaxTMI 
1962 (12) TMI 53
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.... and Parmanand Odhavji. Dwarkadas died on April 1, 1946, leaving a son, Vasantsen. Another firm by the name of Vasantsen Dwarkadas was started on January 28, 1941, and in that firm there were three partners, Vasantsen, Narandas Shivaji and Nanalal Odhavji. This firm was dissolved on October 24, 1946. The firm of Vasantsen Dwarkadas filed a return of its income for the assessment year 1942-43 and also claimed registration as a firm. The income-tax authorities refused registration and came to the conclusion that the firm of Vasantsen Dwarkadas belonged really to Dwarkadas, father of Vasantsen ; therefore they added the income of the firm to the income of Dwarkadas. In subsequent assessment years the firm of Vasantsen Dwarkadas again applied for registration, but registration was again refused. For the assessment years 1942-43 to 1948-49 several appeals were filed before the Income-tax Appellate Tribunal by the firm Vasantsen Dwarkadas both against the quantum of income assessed and against the refusal of the Income-tax Officer to register the firm of Vasantsen Dwarkadas. An appeal was also filed by the firm of Purshottam Laxmidas against its assessment in respect of excess profits ta....
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....een under assessed : I hereby require you to deliver to me within 35 days of the receipt of this notice a return in the attached form of your total income and total world income assessable for the year ending 31st of March, 1943. This notice is being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, Bombay City, Bombay. " The notice was followed by some correspondence between the firm Purshottam Laxmidas and the Income-tax Officer. The result of the correspondence was that the Income-tax Officer informed the firm that its income was to be reassessed in order to give effect to the finding of the Appellate Tribunal in its order dated August 14, 1951, that the business of Vasantsen Dwarkadas was really the business of the firm Purshottam, Laxmidas. On July 9, 1954, Vasantsen as the first petitioner and the firm of Purshottam Laxmidas as second petitioner filed a petition in the High Court under article 226 of the Constitution and asked for the issue of a writ quashing the notice dated April 30, 1954, and a writ of mandamus restraining the Union of India and the Income-tax Officer concerned from taking any steps or proceedings in pursuance....
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.... invalid. It further held that the second proviso to sub-section (3) of section 34 did not apply to the case. On the question as to whether the second proviso violated article 14 of the Constitution it came to the conclusion that no valid distinction could be drawn between persons with regard to whom a finding or direction is given by the Appellate Tribunal and persons with regard to whom no such direction or finding is given. The appellate court expressed the view that both fell in the same category and there was no difficulty in having a uniform provision of law with regard to them. The appellate court further expressed the view that for the assessment year 1942-43 the assessee before the Tribunal was Vasantsen Dwarkadas as representing his father ; in that appeal the firm of Purshottam Laxmidas was not before the Tribunal and therefore the firm was no better than a stranger who was in some way associated with the assessee. The appellate court held in the result that the second proviso to sub-section (3) of section 34 offended against article 14. I have stated earlier that the appeal has been brought to this court from the decision of the appellate court on a certificate of fi....
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....time limits of eight years and four years were continued in respect of two classes of cases mentioned in clauses (a) and (b) of sub-section (1) of section 34 ; clause (a) related to cases of omission or failure on the part of an assessee to make a return of his income or to disclose fully and truly all material facts necessary for his assessment, and clause (b) related to cases where the Income-tax Officer had in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax had escaped assessment, etc. The time limit of eight years applied to cases under clause (a) and the time limit of four years applied to cases under clause (b). By section 18 of the Finance Act, 1956, more changes were introduced with effect from April 1, 1956. The time limit of eight years was omitted from sub-section (1) as regards cases falling under clause (a) but a proviso to sub-section (1) of section 34 which was substituted for the original proviso said inter alia that the Income-tax Officer shall not issue a notice under clause (a) of sub-section (1) for any year if eight years have elapsed after the expiry of that year unless the income, profits o....
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....is constitutionally valid, does it apply to a case where the time limit fixed by sub-section (1) of section 34 had expired some time before April 1, 1952, the date on which the proviso came into effect ? With regard to the first facet, Chagla C. J. had pointed out, rightly in my opinion, that the persons with regard to whom a finding or direction is given and persons with regard to whom no finding or direction is given belong really to the same category, namely, the category of persons who are liable to pay tax and have failed to pay it for one reason or another. Admittedly, persons who are liable to pay tax and have not paid it could not be proceeded against after the period of limitation, unless a finding or direction with regard to them was given by some tribunal under various sections mentioned in the proviso ; therefore, out of the large category of people who were liable to pay tax but failed to pay it, a certain number is selected for action by the proviso and with regard to that small number the right of limitation given to them is taken away. The real question is, is there any rational basis for distinguishing between persons who are liable to pay tax and have failed to pa....
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....ground. He held that so far as assessees were concerned, there might be a rational ground for distinction because the appeal proceedings, etc., might take a long time and the assessee being a party to the appeal could not complain of such delay ; therefore, assessees did not occupy the same position as strangers. But the learned judge held that there was no rational distinction so far as strangers were concerned and there was no reason why they should be deprived of the benefit of the time limit prescribed by sub-section (1). He therefore held that the proviso, so far as it affected persons other than assessees not parties to the proceedings enumerated in it, must be held to be ultra vires the legislature. Even on this narrow ground it seems to me that the respondents are entitled to succeed. The finding which the Appellate Tribunal gave in its consolidated order dated April 14, 1951, was a finding given in the appeal filed by Vasantsen as heir and legal representative of his father for the assessment year 1942-43. In that appeal the firm Purshottam Laxmidas was not even a party, though Purshottam Laxmidas was a party to certain other appeals before the Appellate Tribunal. I have s....
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....on that the decision is of no help to the present appellants. It was said in that decision that the plain effect of the substitution of new section 34 with effect from March 30, 1948, was that from that date the Income-tax Act was to be read as including the new section as a part thereof ; the further effect of the express language of the section was that so far as cases coming within clause (a) of sub-section (1) were concerned, all assessment years ending within eight years from March 30, 1948, and from subsequent dates, were within its purview. The learned Chief Justice of the Calcutta High Court took particular care in that decision to point out that what was not within the purview of the section was an assessment which ended before eight years from March 30, 1948. That decision therefore does not in any way assist the present appellants. On behalf of the appellants, some distinction was sought to be drawn between a right and the remedy thereof and it was contended that the liability of an assessee to pay the tax owing to the State was always there from the commencement of the assessment year and section 34 of the Act dealt merely with the machinery of assessment. It was arg....
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....dly issued or completed, as the case may be, and no such notice, assessment or reassessment shall be called in question on the ground merely that the provisions of section 34 did not apply or purport to apply in respect of an assessment or reassessment for any year prior to the 1st day of April, 1948. " It will be noticed that the section is in two parts : the first part is declaratory of the law and says that sub-sections (1), (2) and (3) of section 34 shall apply and shall be deemed always to have applied to any assessment or reassessment for any year ending before April 1, 1948, in any case where proceedings in respect of such assessment, etc., were commenced under the said sub-sections after September 8, 1948, and any notice issued in accordance with sub-section (1) or any assessment completed in pursuance of such notice within the time specified in sub-section (3), whether before or after the commencement of the Amending Act of 1953, shall be deemed to have been validly issued, etc. ; the second part says inter alia that no such notice shall be called in question on the ground merely that the provisions of section 34 did not apply or purport to apply in respect of an assess....
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....Officer v. Calcutta Discount Co. Ltd. [1953] 23 I. T. R. 471, is the correct view and amended section 34 applies to assessment years prior to 1948-49, but it does not say that an assessment which had become final and in respect of which reassessment proceedings had become time barred before the amended section came into force could be reopened. This appears to me to be clear from the first part of section 31. That part says that sub-sections (1), (2) and (3) of section 34 shall apply and be deemed always to have applied to any assessment, etc., for any year ending before April 1, 1948, in any case where proceedings in respect of such assessment, etc., were commenced under the said sub-sections after September 8, 1948, and any notice issued in accordance with sub-section (1) shall be deemed to be valid, etc. The section does not say that the periods of limitation laid down in sub-sections (1) and (3) are being done away with ; on the contrary, the first part of the section says that the proceedings must have been commenced after September 8, 1948 (the date on which the Amending Act under the said sub-sections and the notice must have been issued in accordance with sub-section (....
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....ns 2 and 4 of the Amending Act. By section 2 of the Amending Act, a new sub-section, namely, sub-section (4), was inserted in section 34. This sub-section said : " (4). A notice under clause (a) of sub-section (1) may be issued at any time notwithstanding that at the time of the issue of the notice the period of eight years specified in that sub-section before its amendment by clause (a) of section 18 of the Finance Act, 1956 (18 of 1956), had expired in respect of the year to which the notice relates. " Section 4 of the Amending Act contained provisions regarding the saving of notices, assessments, etc., in certain cases only and read as follows : " No notice issued under clause (a) of sub-section (1) of section 34 of the principal Act at any time before the commencement of this Act and no assessment, reassessment or settlement made or other proceedings taken in consequence of such notice shall be called in question in any court, tribunal or other authority merely on the ground that at the time the notice was issued or at the time the assessment or reassessment was made, the time within which such notice should have been issued or the assessment or reassessment should hav....
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....nse explained above. I have said earlier that there was some correspondence between the Income-tax Officer concerned and the firm of Purshottam Laxmidas with regard to the notice issued on April 30, 1954. The firm wanted to know the reason why the notice had been issued. In reply to the letter from the firm, the Income-tax Officer said (see exhibit C) : " The income of the concern of Vasantsen Dwarkadas was originally included in the hands of Dwarkadas Vassonji ; Dwarkadas Vassonji was also a partner in the registered firm of Messrs. Purshottam Laxmidas. The Appellate Tribunal by its consolidated order dated August 14, 1951 (I. T. Nos. 7836 to 7851 of 1951-52 and E. P. T. A. Nos. 13 to 17 of 1950-51), has come to the finding that the concern of Vasantsen Dwarkadas is the branch of Messrs. Purshottam Laxmidas. The income of the firm has therefore to be reassessed. " The aforesaid reply does not make out any case that the notice was issued under clause (a) of sub-section (1) of section 34. When we allowed the appellants to file a supplementary statement of the case urging new points we also granted time to the respondents to file a supplementary statement of case, if any, on th....
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....that the section in its first part refers inter alia to a notice issued under clause (a) of sub-section (1) of section 34 any time before the commencement of the 1959 Act and in its second part says that no such notice shall be called in question in any court, etc., merely on the ground that at the time the notice was issued, the time within which such notice should have been issued under section 34 as in force before its amendment by section 18 of the Finance Act, 1956, had expired. The argument is that the language of the section is such that it clearly saves the notice issued on April 30, 1954, because (1) it fulfils the requirement of the first part of the section inasmuch as the notice was issued before the commencement of the 1959 Act and (2) the second part of the section says that the notice cannot be called in question on the ground that it was issued after the expiry of the time mentioned in sub-section (1) of section 34 as it stood before the amendment made in 1956. At first sight the argument appears almost irresistible. But on a careful consideration I have come to the conclusion that it is not correct. It is necessary here to refer to the circumstances under which ....
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.... my view, section 4 of the Amending Act of 1959 has no bearing on a notice issued under section 34 prior to 1956. I do not accept as correct the decision of the Bombay High Court in Onkarmal Meghraj v. Commissioner of Income-tax [1960] 38 ITR 369. That decision implies that section 4 of the Amending Act of 1959 in effect abrogates and supersedes the statutory time limits for action under section 34(1)(a) in all the past years ever since section 34(1)(a) was put on the statute book. It seems to me that on the contrary, the provisions of section 34(4) and section 4 of the Amending Act clearly indicate that the only effect of section 34(4) is to authorise action, and the only effect of section 4 of the Amending Act is to validate action, under section 34 as amended in 1956 in cases where action under section 34 has already become time-barred prior to its amendment in 1956. They have no bearing on notices issued or on assessments made under section 34 prior to 1956. If the intention was to abrogate altogether all provisions regarding limitation in section 34 right from 1922, then section 4 would have been differently worded and would not have said that it saved notices, etc., in certai....
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....called in question on the ground that the time limit had expired before the date of its issue ; the section then would have simply said that notwithstanding any time limit in clause (a) of sub-section (1) of section 34, all notices issued before 1959 would be valid. I do not think section 4 of the Amending Act, 1959, was intended to abrogate all periods of limitation for action under clause (a) of sub-section (1) of section 34 for all past years. The time limit of eight years was removed in 1956 in respect of those cases where the amount was not likely to be less than Rs. 1,00,000. The present case is one where the amount is less than Rs. 1,00,000 and the limitation of eight years applied in 1954. All that section 4 states is that if a notice has been issued under clause (a) of sub-section (1) of section 34 at any time before the commencement of the 1959 Act, the notice shall not be called in question merely on the ground that at the time it was issued the time limit as in force before the amendment made in 1956 had expired ; in other words, section 4 validates action taken between 1956, when section 34 was amended, and 1959, when the Amending Act was passed. It does not (1) A. ....
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....s assessed income and against the refusal of registration. This was for the years of assessment 1942-43 to 1948-49. These appeals filed by the firm, Vasantsen Dwarkadas, and the appeal filed by Vasantsen Dwarkadas as representing the estate of his father, Dwarkadas Vussonji, and the appeals filed by the firm, Purshottam Laxmidas, in regard to the excess profits tax were all heard together and decided by the Income-tax Appellate Tribunal by its order made on August 14, 1951. In that order the Income-tax Appellate Tribunal gave a finding that Dwarkadas Vussonji was not the sole proprietor of the business of firm Vasantsen Dwarkadas, but that the business of the firm belonged to the firm, Purshottam Laxmidas. At the instance of the Commissioner of Income-tax the Appellate Tribunal stated a case to the High Court and the question referred was answered in favour of assessee. On April 30, 1954, the Income-tax Officer issued a notice to the firm Purshottam Laxmidas, under section 34 of the Act. The relevant portion of which was in the following terms : " Whereas I have reason to believe that your income assessable to income-tax for the year ending 31st March, 1943, has been under-as....
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....ance held that the Amending Act of 1953, which became operative as from April 1, 1952, had no retrospective effect so as to enable the Income-tax Officer to reopen the assessment of the firm, Purshottam Laxmidas, for the assessment year 1942-43 which had become time barred before April 1, 1952, and therefore the Income-tax Officer's action was barred and without jurisdiction ; that the second proviso to section 34(3) of the Act " so far as it affects persons other than assessees not parties to the proceedings " was ultra vires of the Constitution being in violation of article 14 of the Constitution ; that on the facts and circumstances of the case the present respondents could not be regarded as strangers to the proceedings in which the findings were given by the Tribunal. The appeal court confirmed the decision of Desai J., and further held that the firm, Purshottam Laxmidas, against whom the impugned action was taken was a stranger to the appeal filed by Vasantsen Dwarkadas. Against this judgment and order the Income-tax Officer has brought the present appeal. The appellant in this court filed a supplemental statement of case in which he sought to challenge the correctness of ....
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....lause (a) of sub-section 34 of the principal Act at any time before the commencement of this Act shall be called in question in any court merely on the ground that at the time the notice was issued the time within which such notice should have been issued under that section as in force before its amendment by clause (a) of section 18 of the Finance Act, 1956 (18 of 1956) had expired. " The new proviso which was substituted in place of the old proviso to section 34(1) by section 18 of the Finance Act, 1956, may conveniently be given here. It reads as follows : " Provided that the Income-tax Officer shall not issue a notice under clause (a) of sub-section (1) (i) for any year prior to the year ending on the 31st day of March, 1941 ; (ii) for any year, if eight years have elapsed after the expiry of that year, unless the income, profits or gains chargeable to income-tax which have escaped assessment or have been under-assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act or the loss or depreciation allowance which has been computed in excess, amount to or are likely to amount to one lakh of rupees or more in the aggregate, eit....
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....a) of the Act as it was before its amendment by section 18 of the Finance Act, 1956. Now the legislature has not said that the notices shall not be challenged on the ground that a period of eight years under section 34(1)(a) as in force after the Amending Act of 1948 had elapsed. It has deliberately used the words " as in force before its amendment by the Finance Act, 1956 ". These words indicate that the legislature intended to give full effect to the amendment made by the Finance Act of 1956 in section 34(1)(a) removing the bar of the lapse of eight years' period in cases of certain incomes. The notices to which section 4 applies and which are validated are those that were issued between the periods mentioned in that Act, i.e., before the Amending Act, 1959, and after the Finance Act, 1956, in spite of the expiry of the eight years period before the amendment by the Finance Act of 1956. Thus whereas sub-section (4) of section 34 applies to and authorises the taking of action after the coming into force of the Amending Act of 1959, section 4 of that Act validates action taken after the amendment by the Finance Act of 1956. It is not the effect of section 4 to abrogate and supersed....
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....nded whereby certain changes were made in regard to the period of time for taking action in consequence of or to give effect to any finding or direction contained in an order under the various sections therein mentioned one of them being an order of the Income-tax Appellate Tribunal. The proviso as amended reads as follows : " Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or reassessment may be made shall apply to a reassessment made under section 27 or to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 31, section 33, section 33A, section 33B, section 66 or section 66A. " It was contended that because action was taken against the respondent in consequence of an order of the Income-tax Appellate Tribunal there was no time limit and therefore the impugned notice was not hit by the period of eight years. It was further argued that for the purpose of validating certain notices and assessments, section 31 of the Amending Act of 1953 was enacted, the relevant portion of which i....
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....lcutta Discount Co. Ltd. But in the meanwhile, i.e., the period between the two judgments, a Bill was introduced in 1952 to amend section 34 so as to nullify the effect of the judgment of Bose J. in the Calcutta case. This resulted in the enactment of the Amending Act of 1953 which received the assent of the President on May 24, 1953, but was given retrospective effect as from April 1, 1952. Section 31 of the Amending Act of 1953 can be divided into two parts. The first part beginning with the words " it is hereby declared " to the words " were commenced under the said sub-section after the 8th day of September, 1948 " is merely declaratory. It declares the section to be applicable to assessments for any year ending before April 1, 1948, in any case where proceedings in respect of such assessment or reassessment " were commenced " under sub-sections (1), (2) and (3) of section 34 after September 8, 1948. According to the appellant the effect of the first part of the section was to apply the provisions of section 34(1), (2) and (3) to every proceeding for assessment or reassessment whenever commenced after September 8, 1948, even though reassessment proceedings in regard to....
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....y nullified the effect of the judgment of Bose J. in Calcutta Discount Co.'s case (Supra) and did not validate time-barred notices. Moreover, in the present case the notice is not being impugned on the ground of section 34 being inapplicable in respect of the assessment year 1942-43. On the contrary the plea raised against the validity of the notice is that the provisions as to eight years in section 34(1) are applicable ; in other words the attack on the legality of the notice is that it is barred by the provisions of section 34(1). This part of section 31 also does not validate the notice issued to respondent No. 1 after a lapse of eight years from the assessment year. In my opinion therefore neither the first part nor the second part of section 31 is applicable to the facts of the present case. I shall next consider the appellant's argument based on the second proviso to section 34(3) as amended by section 18 of the Amending Act of 1953. The assessment year in the present case is 1942-43 and, therefore, the eight years' period under the Act expired on March 31, 1951, and the order of the Appellate Tribunal was August 14, 1951, i.e., after the lapse of 8 years. It was conte....
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....ht where there is not one, but to interpose a bar after a certain period to a suit to enforce an existing right." In Kr. Kr. Kr. Ramanathan Chettiar v. N. M. Kandappa Goundan I. L. R. [1951] Mad. 581. it was held that if a right to sue had become barred by the provisions of the Limitation Act in force on the date of the coming into force of a new Act then such barred rights cannot be revived by the application of the new enactment and it cannot be said that because the remedies are barred but the rights are not extinguished such rights can be revived by mere change in the period of limitation and become enforceable in a court of law. This decision has the support of the observations of the Privy Council in cases which were decided on general principles applicable to limitation and were not based on any statutory provision such as section 28 of the Limitation Act of 1908 by which as a result of lapse of the period of limitation the rights are extinguished. In Appasami Odayar v. Subramanya Odayar [1888] L. R. 15 I. A. 167, 169 it was observed: " By section 1, clause 13, of Act XIV of 1859 a suit for a share of the family property not brought within twelve years from the date of....
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.... "Their Lordships can have no doubt that provisions which, if applied retrospectively, would deprive of their existing finality orders, which, when the statute came into force, were final, are provisions which touch existing rights. " In all these cases the Privy Council proceeded on the principle that if the right of action had become barred according to the law of limitation in force, subsequent enlargement of the period of time does not revive the remedy to enforce the rights already barred. The same principle, in my opinion, would apply to the periods specified in section 34 of the Act and if the period prescribed for taking action had already expired, subsequent change in the law does not make it so retrospective in its effect as to revive the power of an Income-tax Officer to take action under the new law. It is one of the canons of construction of statute of limitation that in the absence of express words or necessary intendment no change in the period of limitation can revive the right to sue which has become barred nor can it impair the immunity from any action which had become final after the lapse of a specified period of time. The Calcutta High Court in Nepal Cha....
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.... L. R. 24 Pat. 391. In the former it was held that the law of limitation which governs an action is the law which prevails on the date when the action is brought and therefore acknowledgement made on a pronote executed in 1934 would be governed by the law in force at the time the suit was brought. In the latter also it was held that the law relating to acknowledgement under section 20 was the one which was in force at the time of the bringing of the suit. But it is significant to note that S. K. Das J. (now a judge of this court) did not disagree with the decision as the matter had been previously decided in the judgment above referred to. He expressly said : "I would personally have come to a different conclusion if the matter were not covered by the aforesaid decisions of this court. " Another argument raised on behalf of the appellant was that the eight years' period prescribed in section 34 is not a rule of limitation but merely a fetter on the power of the Income-tax Officer to take action and the removal of the fetter revives the power of the Officer. This really is not a different argument but the same argument of revival of a right to sue which has been discussed abov....
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....onal because it infringes article 14 of the Constitution in so far as it deprives such third party of the immunity given against assessment or reassessment by the period of eight years mentioned in section 34(1)(a) and it results in prejudging the merits of the third party's case before he is even heard and that there is no reasonable basis for distinguishing such third party from any other person escaping income-tax. The words used in the section are " assessment or reassessment made on the assessee in consequence of or to give effect to any finding contained in an order ". Any person there mentioned must mean a person other than the assessee. The consequences of giving effect to the second proviso to section 34(3) are that the protection of the time limit given by the proviso to sub-section (1) of section 34 will disappear qua those falling within the proviso and would be available to other assessees who fall within section 34(1)(a) of the Act. It was submitted that assessees who fall under this category cannot from a different class based on any real and substantial distinction ; and that there is no nexus between the classification and the object sought to be achieved and there....
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....s given or an order is made within the second proviso to section 34(3) and in regard to another it is not given, no reasonable basis for classification arises as their essential characteristics are the same. But it was argued that in A. Thangal Kunju Musaliar v. M. Venkatachalam Potti [1955] 2 S. C. R. 1196 ; [1956] 29 I. T. R. 349. such classification was made. In that case a native of Quilon within the Travancore State was given a notice under section 5(1) of the Travancore Act XIV of 1124, a provision corresponding to section 5(1) of the Indian Act 30 of 1947 for investigation but before the report could be made the Constitution of India became applicable to Travancore State. The assessee filed a petition in the Travancore High Court for a writ of prohibition prohibiting the Commission from holding an inquiry in regard to evasion and then the matter was brought in appeal to this court. It was held that section 5(1) of Travancore Act is not discriminatory and violative of rights under article 14 when read in juxtaposition with section 47 of the Travancore Income-tax Act corresponding to section 34 of the Indian Incometax Act. Section 47 of the Travancore Income-tax Act was direct....
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....it was contended and it was so held that section 5(1) of Act 30 of 1947 was ultra vires of the Constitution as it was discriminatory and violative of article 14 by reason of the two amendments above referred to. The submission of the respondents that there is no reasonable basis for classification between those who have escaped assessment under section 34(1)(a) and those third parties who have escaped income-tax but with regard to whom a direction or an order is made under proviso (ii) to section 34(3) is well founded and therefore the provision is unconstitutional and hit by article 14. Lastly it was argued that the second proviso contemplates a valid finding or direction and that it cannot be given against a non-assessee at all. It was also submitted that such a finding must be necessary but there is little substance in this submission. Whether a finding is necessary or not must depend on the circumstances of each case and it cannot be said as a matter of law that finding is or is not necessary. For the reasons given above, the appeal must be dismissed with costs. In any case the appellant had undertaken to pay the costs of the respondents irrespective of the result of the ....
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....ribunal on August 14, 1951. The appeals by the firm of Vasantsen Dwarkadas were all dismissed as it was held that it was not a partnership between the persons alleged. In the appeals by Purshottam Laxmidas, it was held that the business of Vasantsen Dwarkadas was one of its branches. In the appeals against the assessment on Dwarkadas, it was held that the income of the business of Vasantsen Dwarkadas had wrongly been added to his income for the assessment year 1942-43 and the addition should be deleted. It was also said, referring to the income of Vasantsen Dwarkadas in respect of the assessment year 1942-43, that " If the Income-tax Officer can include this sum in the income of Purshottam Laxmidas, he is of course at liberty to do so ". It is because of this observation that the impugned notice was served on the respondent firm of Purshottam Laxmidas. It was thereupon that the firm of Purshottam Laxmidas and Vasantsen, the latter representing his father's estate, moved the High Court at Bombay under article 226 for the reliefs earlier mentioned. The respondents to the petition were the appellants, the Income-tax Officer, Bombay, and the Union of India. Parmanand, the other partner....
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....he first amendment to which I desire to draw attention is that made by the Income-tax (Amendment) Act, 1939. Under that amendment where the revenue authorities thought that the assessee had concealed his income or deliberately furnished inadequate particulars, they could issue the notice within eight years of the year in which the income is supposed to have escaped assessment and in other cases, within four years of that year. Sub-section (1) of section 34 was next amended by the Income-tax and Business Profits Tax (Amendment) Act, 1948. This Act was passed on September 8, 1948, but section 8 which substituted a new section for the existing section 34, was brought into operation retrospectively from March 30, 1948. The new sub-section (1) was divided into two clauses. Clause (a) dealt with cases of omission on the part of an assessee to make a return or his failure to disclose fully his income for any year as a result of which income escaped assessment. Clause (b) dealt with cases where there was no such omission but the Income-tax Officer in consequence of information in his possession believed that income of any year had escaped assessment. It was provided that in a case comin....
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.... or more. The notice, it may be remembered, was issued on April 30, 1954, in respect of the year 1942-43. It was a notice therefore which was invalid both under the 1948 and 1956 amendments of section 34(1). I will now refer to the Act of 1959 which I have earlier mentioned. That is the Income-tax (Amendment) Act, 1959. It was passed on March 12, 1959. Section 2 of this Act introduced a new sub-section in section 34, namely, sub-section (4). That sub-section was in these terms : " (4) A notice under clause (a) of sub-section (1) may be issued at any time notwithstanding that at the time of the issue of the notice the period of eight years specified in that sub-section before its amendment by clause (a) of section 18 of the Finance Act, 1956 (18 of 1956), had expired in respect of the year to which the notice relates. " Section 4 of this amending Act on which I propose to rest my judgment in this case runs as follows : " 4. No notice issued under clause (a) of sub-section (1) of section 34 of the principal Act at any time before the commencement of this Act and no assessment, reassessment or settlement made or other proceedings taken in consequence of such notice shall b....
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....n the name of Vasantsen Dwarkadas. What happened was that the income of Vasantsen Dwarkadas for 1942-43 was shown as the income of its own as an independent firm and this was done by Vasantsen. Obviously, Vasantsen, his father Dwarkadas and Parmanand, the latter's partner in Purshottam Laxmidas, were all acting together. It would perhaps be more correct to say that things had been left to Dwarkadas and Vasantsen to manage. They had three-fourth interest in the business, while Parmanand had only one-fourth. Furthermore, Parmanand has taken no interest in the present proceedings. It would follow from all this that if Vasantsen Dwarkadas's income had been shown separately, it could not have been included in the return filed by Purshottam Laxmidas. Therefore, it is a case in which Purshottam Laxmidas's income for 1942-43 escaped assessment because of its failure to disclose its income fully. That is why I think it beyond doubt that the notice in the present case had been issued under clause (a) of section 34(1). It is none the less so though it was issued in consequence of the direction of the Tribunal that the Income-tax Officer was at liberty if he could in law do so, to include t....
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....notice having been issued after the expiry of the time prescribed for it in the section as it then stood. Section 4 does not protect the notice from invalidity otherwise attaching to it. Now it will be remembered that the 1939 amendment of section 34 also prescribed a period of time for the issue of the notice. That prescription had to be obeyed whenever applicable. Section 4 provided for no immunity against a breach of that prescription. So, though section 4 of the 1959 Act freed a notice from the bar of limitation in respect of it imposed by the 1948 amendment, it did not altogether do away with all prescriptions of time. In spite of section 4, a notice contemplated by it would be subject to the prescription of time as its issue under the 1939 Act and may be, under section 34 as it stood before the 1939 amendment. If the notice was issued after the 1956 amendment, it would also be subject to the prescription as to time provided by that amendment. Then it was said that if section 4 applied to a notice issued more than eight years after the year in which the income escaped assessment but before the 1956 amendment came into force in a case where the escaped income of the year was....
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....r subsection (4), it could not be that it was intended that the same income could not be brought to tax by a notice earlier issued and prima facie made valid by section 4. There would be no reason to make a distinction between the two cases. If a distinction could not be made between the two cases, and in one case notices issued before 1956 were covered by section 4, section 4 must apply to all notices issued before the 1956 amendment came into force. I may, before I conclude, as well say that for the reasons mentioned in the judgment in the case of Commissioner of Income-tax v. Sardar Lakhmir Singh (1) (C. As. Nos. 213-215 of 1958), that I shall presently read today, I think that the second proviso to section 34(3) of the Income-tax Act is invalid and cannot therefore support the notice. The result is that I think that the present notice was validated by section 4 of the Income-tax (Amendment) Act of 1959. The appeal will, therefore, be allowed. As the certificate under which the appeal was admitted so provides by consent of parties, the appellant will pay the costs of respondents Nos. 1 and 2, of this appeal. The orders of the courts below are set aside. HIDAYATULLAH J.-....
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....lways provided a period or periods of time for such action though after 1956 it has done away with the restriction of time in certain classes of cases. We are not concerned with the state of law prior to the Amending Act of 1939 or the amendments made later than the Act of 1959. During the intervening twenty years, the Indian Legislature and Parliament have not only amended section 34 but have passed at intervals validating laws and these cases involve the interpretation and application of the section as amended from time to time and the determination of the effect of the validating provisions with a view to seeing whether any impugned notice or assessment is saved by any validating provision. In our opinion, the provisions taken all-in-all are sufficient to uphold the validity of the divers notices issued in these cases and the assessments, if any, made as a consequence. If the notices and the assessments are held to be in time and thus valid, there is nothing in these appeals besides the constitutionality of the second proviso to section 34(3) which was raised successfully in the appeals from Bombay. If the constitutionality is also upheld then these several judgments and orders ....
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.... conclusions of the learned single judge but held further that the said firm was " a stranger " to the proceedings before the Tribunal. The validity of the notice was sought to be established under section 34 as amended in 1948 and also by invoking section 31 of the Indian Income-tax (Amendment) Act, 1953, Act XXV of 1953. In this court by a supplemental statement the amendments made by the Finance Act of 1956 (18 of 1956) and by the Indian Incometax (Amendment) Act, 1959 (1 of 1959) were also brought to our notice. The amount involved in this case was Rs. 62,732. In the companion appeals, the full facts of which will be given in this judgment later, the position was this. In Civil Appeal No. 585 of 1960, notices were issued to the respondent on February 18, 1957, in respect of the assessment years 1944-45, 1945-46 and 1946-47, as a result of a direction by the Appellate Assistant Commissioner. The notices were quashed by the Bombay High Court following the decision just mentioned. The amounts involved were Rs. 14,000, 14,000 and 38,000. In Civil Appeal No. 509 of 1958, the notice was issued in 1949, to a lady whose husband had remitted Rs. 9,180 to her from Bangkok in the year ....
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....on such income, profits or gains a notice and may proceed to assess or reassess such income, profits or gains and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section" It will be noticed that the Income-tax Officer was to proceed on definite information that there was an escapement of assessment before he took action. The section provided two periods in which action could be taken -(i) an eight year period and (ii) a four year period. The first was to apply to cases in which the Income-tax Officer had reason to believe (a) that the assessee had concealed the particulars of his income or (b) furnished inaccurate particulars thereof. The second was to apply in all other cases. The terminus a quo in either case was the end of the assessment year and the terminus ad quem the service of the notice. The section remained in force till March 30, 1948, when the Income-tax and Business Profits Tax (Amendment) Act, 1948 (passed on September 8, 1948) substituted a new section in place of the old. That section in so far as it is material to our purpose read : " 34. (1) If (a) the Income-tax Officer has reason to....
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.... be made after the expiry of eight years, and no order of assessment or reassessment in any other case shall be made after the expiry of four years, from the end of the year in which the income, profits or gains were first assessable : Provided that where a notice under sub-section (1) has been issued within the time therein limited, the assessment or reassessment to be made in pursuance of such notice may be made before the expiry of one year from the date of the service of the notice even if such period exceeds the period of eight years or four years, as the case may be : Provided further that nothing contained in this sub-section shall apply to a reassessment made under section 27 or in pursuance of an order under section 31, section 33, section 33A, section 33B, section 66 or section 66A. " This new section created different conditions precedent to action in the two kinds of cases to which the periods 8 and 4 years were applicable : 8 years : Income-tax Officer should have reasons to believe that escapement was due to omission or failure on the part of the assessee : (i) to make a return of his income for the years ; or (ii) to disclose fully and truly all mat....
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....nd merely that the provisions of section 34 did not apply or purport to apply in respect of an assessment or reassessment for any year prior to the 1st day of April, 1948. " The effect of these provisions will have to be seen in cases in which notices or assessments took place after April 1, 1952, particularly as a result of a direction such as is mentioned in the second proviso to subsection (3) of section 34 as amended by this Act. By the Finance Act, 1956, the section was again amended from April 1, 1956. The most significant changes were the omission of the time limit of eight years in sub-section (1) in respect of cases falling under clause (a) and the substitution of certain provisos to sub-section (1). The section as amended in so far as material to our purpose is reproduced : " 34. (1) If (a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-as....
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.... . . Explanation.-Production before the Income-tax Officer of account books or other evidence from which material facts could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section. " That this section was to operate on back period does not admit of any doubt. No clearer language could be used for the purpose. The first proviso to sub-section (1) makes this abundantly clear by allowing notices to be issued " at any time " for any year later than the year ending on March 31, 1941, and then limiting action to eight years from the end of the year in cases coming in clause (a) involving less than rupees one lakh. Though the section came into force on April 1, 1956, it covered in this way years going right back to 1941, of course, subject to the conditions indicated there. For those cases in which there was no default on the part of the assessee the period continued to be four years as before. The deletion of the time-limit of eight years, allowing action to be taken at any time in cases involving more than rupees one lakh and limiting the time to eight years in all cases coming within claus....
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.... two periods but stated that the eight year period applied also to a failure to furnish a return. All other provisions substantially remained the same. In a case in which the return was not made, it would have been a question which of the two periods in the section as amended in 1939 would have applied. The 1948 amendment said the action could be taken within eight years. Another question thus arose, namely, whether the four-year period as provided by the 1939 amendment which had expired applied or the eight-year period as provided by the 1948 amendment. The answer to this question depended on the further question whether the 1948 amendment was retrospective in its operation. The Amending Act of 1948 was passed on September 8, 1948, and came into force from March 30, 1948. In some cases it has been held that its retrospectively cannot be carried further than March 30, 1948. That is true in one sense but not in the sense how its provisions were to work in relation to the assessees. The section was meant to enable the issue of notices with a view to reassessing income which had escaped assessment and allowed the reassessment of income for back years. It was meant to operate retros....
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....forced by the officers administering the tax laws. If the disability is removed or according to a new law a new time-limit is created retrospectively, there is no reason why the liability should not be treated as still enforceable. The law does not deal with concluded claims or their revival but with the enforcement of a liability to the State which though existing remained to be enforced. This aspect was admirably summed up by Chakravartti C. J. (Sarkar J. concurring) in Income-tax Officer v. Calcutta Discount Co. Ltd. [1953] 23 I. T. R. 471, 482. as follows : " The plain effect of the substitution of the new section 34 with effect from the 30th March, 1948, is that from that date the Income-tax Act is to be read as including the new section as a part thereof and if it is to be so read, the further effect of the express language of the section is that so far as cases coming within clause (a) of sub-section (1) are concerned, all assessment years ending within eight years from the 30th March, 1948, and from subsequent dates, are within its purview and it will apply to them, provided the notice contemplated is given within such eight years. What is not within the purview of the s....
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....n to be taken without any limit of time. A similar result was reached in certain cases under the 1953 amendment of the second proviso to sub-section (3) of section 34. It provided : nothing in the section limiting the time within which any action may be taken shall apply to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section already mentioned. This proviso was challenged under article 14 of the Constitution but that is a different matter. If the section is constitutionally enacted then it also means what it says. It is hardly possible to imagine clearer language than the one used. It says that the limit of time mentioned in section 34 is removed in certain cases, that is to say, action can be taken at any time in these cases. In our judgment, each case of a notice must be judged according to the law existing on the date the notice was issued or served, as the law may require. So long as the notice, where the notice is in question, and the assessment, where the assessment is in question, are within the time limited by the law, as it exists when the respective actions are ....
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.... that the provisions of section 34 (as amended up to April 1, 1952) did not apply to an assessment or reassessment for any year prior to April 1, 1948. The effect of the amendment of the year 1953 on this case may be stated shortly thus : The assessment year being 1942-43, notice under section 34 had to issue in 1951 at the latest. After that year notice could not issue unless the limit of time was increased or removed. But the fact that the notice could not be issued after 1951 did not clothe the assessee with a right not to pay the tax if it became legally claimable again. If the law conferred a power on the Income-tax Officer to deal with such a case, the assessee would again be exposed to proceedings, provided it said in clear terms that the law was retrospective. This is what the law did in precise and clear terms. In 1953 an Act was passed amending section 34 which enabled action at any time if there was a finding or direction of the character indicated in the second proviso to sub-section (3) of section 34. Section 31 also made this position clear by applying the amended section 34 to all assessments commenced after September 8, 1948, and saved all notices issued and asse....
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....eceding amendment and the validating section. Thus according to him section 4 of the Amending Act of 1959 operated to validate action taken after the 1956 amendment and sub-section (4) introduced in section 34 operated from the date of introduction. Mr. Palkhivala tried to support these contentions by a textual interpretation of the sections, the history of legislation on the subject of income, profits and gains escaping assessment, and the marginal notes to the sections. What he argued in relation to the 1959 Act was applied with suitable adaptations in the interpretation of the amendments of 1948, 1953 and 1956. To begin with we do not accept the contention of Mr. Palkhivala that section 4 of the 1959 Act is retrospective only up to 1956. That section is of course retrospective up to that year but it operates on notices issued even earlier than the Act of 1956 or in other words in respect of assessment years prior to March 31, 1956. There is good reason to think that it covers all the period between 1941 and 1959. Since it is conceded that it does cover the period 1956 and 1959, all that we have to consider is whether it covers the period 1941-56. For this purpose, we shall an....
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....time notwithstanding that at the time of the issue of the notice the period of eight years specified in that sub-section before its amendment by clause (a) of section 18 of the Finance Act, 1956 (18 of 1956), had expired in respect of the year to which the notice relates. " The last words definitely refer to an year which would be governed by the 1948 amendment. This is a law made in 1959 and it speaks of notices not complying with the time-limit as prescribed by the 1948 Act. To test whether the retrospectively goes back only to 1956 we can look at the matter this way. The time-limit in clause (a) of section 34(1) for all cases was eight years under the 1948 amendment. The years on which the 1948 amendment which came into force on March 30, 1948, operated admittedly included the year March 31, 1948, to March 31, 1949, as the first year and so on till on April 1, 1956. Working backward from 1959 for eight years we come to 1951. The years 1951-52 and 1955-56 admittedly were governed by the 1948 Act and were still within the eight-year period under the 1956 amendment (if it applied) till March 31, 1960, to March 31, 1961. The years 1956-1959 were within time because there was e....
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.... and give effect to section 4 thereof. In any case, the provisions of section 34, as amended by the Amending Act of 1953 read with section 31 of that Act, were sufficient to save notice issued against the firm of " Purshottam Laxmidas " unless the amendment to the second proviso to sub-section (3) of section 34 was unconstitutional. We are of opinion that the proviso was not unconstitutional and we shall give our reasons in a later part of this judgment. That is a matter which can be dealt with separately. In our judgment notice against the firm of " Purshottam Laxmidas " was validly issued under the amended second proviso to section 34(3) and its validity cannot be called in question in any court or Tribunal in view of the provisions of section 4 of the Amending Act of 1959. We would, therefore, allow Civil Appeal No. 705 of 1957. C. A. No. 509 of 1958. We have already referred to this appeal by the Commissioner of Income-tax, Madras. The respondent is a lady whose husband resided in Bangkok between September, 1940, and July, 1947. In the year relative to the assessment year 1942-43 he remitted through his agent in India a sum of Rs. 9,180 for payment to the respondent. The ....
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....hdrawn. Some of these cases are still pending but we are not concerned with them. The assessee filed a suit against one Jagannath Ram Kishan for rendition of accounts as a munim. Jagannath Ram Kishan claimed to be a partner. The suit was dismissed as it was not proved that Jagannath Ramkishan was a munim. Jagannath Ram Kishan died and his widow, Kalavati, was substituted as legal representative. The Income-tax Officer issued notices under section 34(1) to Kalavati for the assessment years 1944-45, 1945-46 and 1946-47. In the appeals arising therefrom the Appellate Assistant Commissioner held that there was a partnership between Jagannath Ram Kishan and the assessee which lasted till August 26, 1945, and directed the Income-tax Officer to assess the partnership. Notices under section 34 were then issued on February 18, 1957, to the partnership and also to Jagannath Fakirchand. Jagannath Fakirchand filed a petition under article 226/227 in the High Court contending that the notices were out of time and the second proviso to section 34(3) was unconstitutional. The Bombay High Court, following its decision in the previous case, accepted both the contentions. The sums involved in the....
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....by Lakhmir Singh and Nechal Singh as " individuals ". The voluntary return of Lakhmir Singh as individual remained on file. There was an appeal by the Hindu undivided family and the assessment was set aside by the Appellate Assistant Commissioner on March 20, 1953, who directed assessment of Lakhmir Singh as an individual. This was done on November 17, 1953, on the voluntary return already filed by him. On appeal by Lakhmir Singh it was contended that the assessment was barred under the unamended second proviso to section 34(3) which provided a period of four years. The appeals were dismissed as it was held that there was no limitation for an assessment under section 34(3) in view of the new proviso. The High Court held on reference that the Amending Act of 1953 did not apply and the assessments were barred under the unamended section 34(3) as the amendment came into force on April 1, 1952, after the assessment was barred already. The 1947-48 assessment was also held barred for the same reason. No reference was made to section 31 of the Amending Act of 1953. The department contended before us that the assessment was valid under section 31 of the Act 25 of 1953 and that the amend....
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.... section 31 of the same Act assessments made before or after the commencement of the Amending Act of 1953 (April 1, 1952) were declared valid if proceedings commenced after September 8, 1948. The question as framed cannot be answered without reference to section 31 and even if parties did not bring it to the notice of the High Court it was the duty of the High Court to look into the validating provisions of section 31. If the High Court did not, we know of no rule or decision of this court which prevents us from looking into a validating provision which existed at the time of the High Court's decision and was overlooked by it and which by itself furnished the answer to the question propounded for the opinion of the High Court. No decision of this court lays down that in determining the true answer to a question referred under section 66, this court is confined only to those sections to which the Tribunal or the High Court referred. Indeed, there are many cases which say the contrary : see Kusumben D. Mahadevia v. Commissioner of Income-tax [1960] 3 S. C. R. 417 ; [1960] 39 I. T. R. 540, Zoraster & Co. v. Commissioner of Income-tax [1961] 1 S. C. R. 210 ; [1960] 40 I. T. R. 552 and ....
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....is to create a bar against its own officers administering the law. It tries to trim between recovery of tax and the possibility of harassment to an innocent person and fixes a duration for action from these two points of view. These periods are occasionally readjusted to cover some cases which would otherwise be left out and hence these amendments. An assessment can be said to become final and conclusive if no action can touch it but where the language of the statute clearly reopens closed transactions there can be no finality. We would not raise these prescribed periods to the level of those periods of limitation which confer not only immunity but also give titles by the passage of time. The attack on the second proviso to sub-section (3) of section 34 is threefold. It is contended that (a) it deprives a party of the ordinary period of limitation, (b) it results in the prejudging of the merits of a case before the party is heard and (c) there is discrimination between a stranger to the proceedings in which a finding or direction is given and other persons about whom there is no finding or direction. It is said that the latter are protected by " a rule of limitation " but not th....
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....annot be allowed to say that theirs is a case on par with a man who acts innocently. The section also draws a distinction between two more classes-one above rupees one lakh and the other below it. In the former there is no limit of time except that the Income-tax Officer cannot go beyond the year ending on the 31st day of March, 1941, and that he must take the sanction of the Board of Revenue. In the other cases the Income-tax Officer can take action within eight years and must obtain the sanction of his Commissioner. These two distinctions have never been challenged as discriminatory. What is challenged is the provision that if in the assessment proceedings against A there is a finding or direction against B, proceedings can be started against B at any time while the time-limit for action otherwise is either four years or eight years. But it must be remembered that the law is dealing with the subject of tax evasion. No uniform system applicable to all kinds of defaulters can be made. The methods of tax-evaders are both ingenious and varied. One such method is to confuse the issue by mixing up incomes, profits and gains of several parties so that the income of A may appear to be....