TaxTMI 
TaxTMI 
TaxTMI 
1962 (12) TMI 53
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....pril 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 tax, and there was also an appeal for the ass....
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....er 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 of the said notice. Their main contentions were (1) that t....
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....n (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 fitness granted by the High Court. In the original statement of the....
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....f 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 or gains chargeable to income-tax which have escaped assessment or hav....
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.... 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 pay it and with regard to whom a finding or direction is given, and persons who....
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....ional 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 some difficulty in appreciating how the firm Purshottam Laxmidas can be treate....
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.... 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 argued that a case under section 34 was not analogous to a time-barred claim to recove....
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....nt 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 assessment prior to April 1, 1948. It should be noticed here that the Amending Act of 1948 (XLVII....
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....ended 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 (1). The Income-tax Officer can commence proceedings under the said sub-sections or issue a no....
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....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 have been made under that section as in force before its amendment by clause (a) of section 18 of the Fina....
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....r 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 their behalf. The respondents filed a supplementary statement of their case and said therein that the notice da....
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....ction 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 the Amending Act of 1959 was enacted. Prior to the amendment of sub-section (1) of section 34 by the Finance Act, 1....
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.... 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 certain cases only ; on the view canvassed for by the department, section 4 would save notices issued in all cases before....
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....uld 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. I. R. 1959 Cal. 567.affect notices issued prior to 1956 nor does it abrogate all periods of limitation. For all thes....
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....eals 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-assessed I, therefore, propose to reassess to the income allowance that has been under-assessed." It is the validity of this notic....
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....come-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 the judgment of the High Court on two additional grounds : (1) that section 31 of the Amending Act of 1953 had been overlooked and (2) that....
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....he 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, either for that year or for that year and any other year or years after which or after each of which eight years have elapsed, not being a year or years endin....
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.... 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 supersede the time limit provided by section 34(1)(a) of the Act in all the past years. All it does is that it validates those notices which were issued within the two l....
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.... 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 is as follows : " Validity of certain notices and assessments.-For the removal of doubts it is hereby declared that the provisions of sub-sections (1), (2) and (3) of se....
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....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 them had become time-barred. The contention on behalf of the respondents, on the other hand, was that the use of the words " were commenced " under sub-sections (1), (2) and (3....
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....t 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 contended by the appellant that as a result of this proviso the limitation as to time within which any action could be taken in regard to any assessment or reassessment was removed if asse....
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....951] 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 the last participation in the profits of it would be barred. This Act continued in force until the 1st July, 1871, when Act IX of 1871 came into force. Consequently, if there was no particip....
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....ich 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 Chandra Roy v. Niroda Sundari Ghose [1912] I. L. R. 39 Cal. 506 held that the right of the judgment debtor to make an application for setting aside an ex parte decree could not be revived by a change in the law if ....
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....ted 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 above. Change in the law as to the period in which a suit can be brought to recover a debt or action can be taken by the Income-tax Officer to commence an assessment or reassessment does not impair the rights already acquir....
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....esults 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 therefore article 14 is violated. Reliance was placed on the judgment of this court in Suraj Mall Mohta v. A. V. Visvanatha Sastri 1955] 1 S. C. R. 448, 461 ; [1954] 26 I. T. R. 1. ; Shree Meenakshi Mills Ltd. v. A. V. Visvanath....
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....hat 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 directed only against persons concerning whom definite information came into the possession of the Income-tax Officer in consequence of which that officer discovered the escaped income and such class was a definite class and it was n....
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....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 appeal and he must pay the costs of the respondents. SARKAR J.-This appeal arises out of a petition under article 226 of the Constitution for the issue of writs restraining the revenue authorities from making an assessment under a....
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....s 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 in Purshottam Laxmidas, was also made a respondent to the petition but he does not seem to have taken any interest in the proceedings at all. When the matter was heard in the High Court, the Act of 1959 had not been passed. The reven....
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....equate 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 coming under clause (a) the notice might be issued within eight years and in a case coming under clause (b) within four years of the end of the year in which the income escaped assessment. There was a proviso to this sub-section which said that the....
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....h 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 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....
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....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 the income of Vasantsen Dwarkadas for 1942-43 in the income of Purshottam Laxmidas. The order could not have enabled a notice to issue. The notice had to be issued under a statutory provision. That provision was section 34(1)(a). The next requirement of section 4 o....
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....riod 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 less than Rs. 1,00,000 the position would be curious. A notice issued in a similar case after the 1956 amendment would be bad under section 34 as it then stood and section 4 could not save it for it saved notices only from the effect of the 1948 amendment. The position th....
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....ade 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.-In this judgment we shall deal also with C. As. Nos. 214, 215 and 509 all of 1958 and C. A. No. 585 of 1960. The appellant is the Commissioner of Income-tax, Bombay. In Civil Appeals Nos. 214 and 215 of 1958, the Commissioner of Income-tax, Bihar, and in C. A. No. 509 of 1958 th....
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....uring 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 must be reversed and that indeed is our opinion. We shall now give the facts of this appeal. In this case there was a firm of two partners (i) Dwarkadas Vasantsen and (ii) Parmanand Odhavji, bearing the name " Purshottam Laxmidas ". This firm did business from October 28, 1935, t....
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....(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 relative to the assessment year 1942-43. She had omitted to file a return. In Civil Appeals Nos. 214 and 215 of 1958 the assessment years were 1946-47 and 1947-48. The assessment of the respondent as individual was made on November 17, 1953, as a result of a direction by the Appellate A....
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.... 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 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 a....
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....ithin 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 material facts necessary for his assessment. The Explanation made it clear that the disclosure must be positive. 4 years : This comprised all other cases in which there was no omission or failure on the part of an assessee but the Income-tax Officer was in possession of information which led him to believe that there ....
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.... 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-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of ....
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.... 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 clause (a) led to some controversy as to whether the issuance of a notice under the section as amended by the Amending Act of 1956 but served beyond eight years as laid down in the 1948 amendment, and the reopening of cases right back to 1941 which were subject to a time-limit under the 1948 amendment, which time had expired was legal. The Calcutta Hig....
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....in 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 retrospectively for eight years in some cases and four years in others. In our opinion it had retrospective operation in respect of back years according to its own provisions. If the 1948 amendment could be treated as enabling the Income-tax Officer to take action at any point of time in respect of back assessment years within eight years of March 30, 1948, then su....
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....isting 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 section is an assessment year which ended before eight years from the 30th March, 1948. " We entirely agree with these observations and in our opinion after the passing of the 1948 amendment which came into force in March 30, 1948, the Income-tax Officer could take action in all cases in which the assessment years ended within eight years of the date of his act....
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....e 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 taken, the actions cannot be questioned provided the law is clearly retrospective. The only case in which no further action can be taken is one in which action was not taken under the old law within the period prescribed by that law and which is not also within the period mentioned in the new law if its operation is retrospective. All other cases are covered by the....
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....ssue 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 assessments made in respect of any year prior to April 1, 1948, whether the notices were issued or the assessments were made before or after April 1, 1952. The department in this case had relied on the Amending Act of 1953 before the High Court. Though the High Court considered the case from the angle of the second proviso to sub-section (3) of section 34 and also struck ....
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....e 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 analyse the section into its component parts. The section first says : " 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 . . . . . made . . . . . in consequence of such notice . . . . . " This means that it is speaking of all notices issued earlier than the ena....
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.... 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 either no limit or a limit of eight years which would give room for action till 1964-1967. Where was the need for the validating provisions or the addition of subsection (4) of section 34 in 1959 ? Action under the 1948 amendment could be taken till the year of assessment 1951-52 and all intervening assessment years till the year ending 31st day of March, 1956. Similarly, action under th....
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....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 respondent did not submit a return of this sum which was deemed to be her income under section 4(2) of the Income-tax Act. In the year 1949, a notice was served on her under section 34 of the Income-tax Act as amended by the Amending Act of 1948. The question was whether the amendment of 1948 applied to the notice. The Tribunal held that it did but the High Court of Madras took the contrary view.....
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....ncome-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 these cases were Rs. 14,000, 14,000 and 30,800 for the three years respectively. The assessment in this case was the result of a direction and the second proviso to section 34(3) as amended in 1953 and section 31 of the Amending Act of 1953 governed this case. The notice is also further saved by the provisions of the Amending Act of 1959 as it was issued after 1956 (February 18, 1957). It was not contended....
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.... 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 amended proviso applied. Section 31 applied the amended section 34(1), (2) and (3) of the Income-tax Act to assessments and reassessments for any year ending before April 1, 1948, in which the proceedings were commenced after September 8, 1948. It was contended by the assessee before us that the section cannot apply because (a) it was not relied upon before the High Court and (b) that there was nothing to show that the pro....
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....igh 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 the recent case of Scindia Steam Navigation Co. v. Commissioner of Income-tax [1961] 42 I. T. R. 589 ; [1962] 1 S. C. R. 788. We must, therefore, look into section 31 to determine these appeals. It remains only to consider now whether the proceedings commenced after September 8, 1948. The application of section 31 depends on this circumstance. Here the facts are plain and admit of no doubt whatever and the complaint that there....
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....ut 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 the former. The finding also is characterised as without authority of law and thus inoperative on the ground that a finding in respect of other years or other persons is not possible under the Income-tax Act. In support of the plea of discrimination reliance is placed on Suraj Mall Mohta v. A. V. Viswanatha Sastri [1955] 1 S. C. R. 448 ; [1954] 26 I. T. R. 1, Shree Meenakshi Mills Ltd. v. A. V. Viswanatha Sastri [1955] 1 S. C. R. 787 ;....
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....n 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 the income of B or of AB. There is of course always the chance that it may not be discovered to be the income of either A or B or AB. The cases with which we have dealt are admirable examples of such actions. Whether the firm " Vasantsen Dwarkadas " belonged to its three partners, or to Dwarkadas alone or to the firm " Purshottam Laxmidas " ; whether Jagannath Ramkishan was a munim of Jagannath Fakirchand or his partner ; whether Lakhmir ....