TaxTMI 
TaxTMI 
1962 (11) TMI 48
X X X X Extracts X X X X
X X X X Extracts X X X X
.... partly of the amount on which a rebate of income tax was earlier allowed to it under clause (i) of the proviso to Paragraph B of Part 1 of the relevant Schedules to the Finance Acts, when such dividends were declared prior to the coming into force of the sub-section, that is prior to April 1, 1956. The facts which have given rise to the appeal are these. The Ahmedabad Manufacturing and Calico Printing Co. Ltd. is the appellant before us. The appellant company was incorporated under the Indian Companies Act, 1866, and has its office at Ahmedabad. It carries on the business of manufacturing and selling cotton piece goods and chemicals. For the assessment year 1952-53, the corresponding account year being the calendar year 1951, the appellant was assessed to income tax and super tax on a total income Rs. 1,02,79,808 and allowed a rebate of one anna per rupee on the undistributed profits of Rs. 36,62,776 under the first proviso to Paragraph B of Part 1 of the First Schedule to the Finance Act, 1952. The amount of rebate allowed was Rs. 2,28,924. for the assessment year 1953-54, the corresponding account year being the calendar year 1952, the appellant showed a book profit of Rs. 45....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of any compelled assessment of a partner in a firm it is found on the assessment or reassessment of the firm or on any reduction or enhancement made in the income of the firm under section 31, section 33, section 33A, section 33B, section 66 or section 66A that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of sub-section (1) shall apply thereto accordingly, the period of four years referred to in that sub-section being computed from the date of the final order passed in the case of the firm. (6) Where the excess profits tax or the business profits tax payable by an assessee has been modified in appeal, revision or any other proceeding, or where any excess profits tax or business profits tax has been assessed after the completion of the corresponding assessment for income-tax (whether before or after the commencement of the Income- tax (Amendment) Act, 1953), an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed may at any time within four years from the date of any assessment order passed by him on his own motion rectify any mistake apparent from the record of the assessment. The power of rectification may be exercised subject to two conditions : (1) that there is a mistake apparent from the record of the assessment, and (2) that the order of rectification is made within four years from the date of the assessment sought to be rectified. Sub-section (5) deals with inclusion or correction of the income of a partner in a firm consequent upon assessment or reassessment of the firm of which he was a partner. Sub-section (6) deals with re-computation of total income of an assessee in consequence of modifications made in the excess profits tax or the business profits tax payable by an assessee subsequent to an assessment made under the Income-tax Act. These two sub-sections were considered by this court in two decisions to which we shall presently refer. They have been relied on by the appellant and have some bearing on the interpretation of sub-section (10). Sub-section (2), (3), (4), (7), (8) and (9) are not relevant for our purpose and need not be referred to. Now, we come to sub-sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it is submitted that "the general rule is that all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective; and retrospective effect is not to be given to them unless by express words or necessary implication, it appears that this was the intention of the legislature" and "it is a corollary of this general presumption against retrospective that, even when a statute is intended to be to some extent retrospective, it is not to be construed as having a greater retrospective effect than its language renders necessary" (Halsbury's Laws of England, volume 36, third edition, page 423 and page 426). The argument on behalf of the appellant is that by section 28 of the Finance Act, 1956 sub-section (10) has undoubtedly retrospective effect from April 1, 1956; but the language of the sub-section does not expressly, nor by necessary implication, show that it has any greater retrospective effect. It is pointed out that, on the contrary, where the legislature wanted a particular sub-section to have greater retrospective effect, it had said so. e.g., in sub-section (6). It is also pointed out that sub-section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... allowed to the company... be deemed to have been made the subject of incorrect relief under this Act, and the Income-tax officer shall recompute the tax payable by the company by reducing the rebate originally allowed ..." This language, it is argued, is clearly prospective and does not justify the carrying of the legal fiction to a period earlier than April 1, 1956. As against these arguments, learned counsel for the respondent has contended that the language of sub-section (10) is different from that of sub-section (5) and the principle laid down by this court in S. K. Habibullah's [1962] Supp. 2 S. C.. R, 716 case cannot be applied to the present case. Alternatively ,he has argued that the decision is incorrect and should be reconsidered by us. The argument of learned counsel for he respondent is that sub-section (10) by necessary implication has a greater retrospective effect than what is laid down by section 28 of the Finance Act, 1956. He points out that the first part of the sub-section talks of the assessments made for any of the years beginning on April 1, 1948, to April 1, 1955, when a rebate of income-tax was allowed; then the second part refers to the subsequent dec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt on which the rebate was granted, the subject of incorrect relief etc. This language which creates the legal fiction is clearly prospective and shows that what was correct at the time when the rebate was granted is rendered incorrect on the happening of the crucial event after the coming into force of the sub-section, and by the express terms of section 28 of the Finance Act, 1956, the sub-section comes into force on April 1, 1956. We are unable, therefore, to agree with the learned counsel for the respondent that the language of sub-section (10) by necessary implication takes the legal fiction back to a period earlier than April 1, 1956. In coming to this conclusion, we have kept in mind the principle that a statute does not necessarily become retrospective because a part of the requisites for its action is drawn from a time antecedent to its passing. Furthermore, we see no reason why the principle laid down in S.K. Habibullah's (supra) case, will not apply in the present case nor are we satisfied that that decision with regard to sub-section (5) of section 35 was incorrect. We may point out, however, that in Second Additional Income tax Officer v. Atmala Nagaraj this court w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erms of which I will set out presently, the aforesaid rebate was withdrawn and the appellant was called upon to refund it. The appellant then applied to the High Court at Bombay for a writ to quash the order of March 27, 1958, on the ground that sub-section (10) was not applicable to the facts of this case for reasons which I will later state. That application was dismissed. This appeal is against this decision of the High Court at Bombay dismissing the application. Now sub-section (1) of section 35 of the Income-tax Act was enacted by the Finance Act of 1956 and it was given effect from April 1, 1956. That sub-section, in so far as it is necessary to state for the purpose of this case, provides that where in any of the assessment years 1948-49 to 1955-56, a rebate of income-tax was allowed to a company under the Finance Act prevailing in that year on a part of its total income" and subsequently the amount on which the rebate of income-tax was allowed as aforesaid is availed of by the company, wholly or partly, for declaring dividends in any year.... the Incometax Officer shall recompute the tax payable by the company by reducing the rebate originally allowed". The sub-section i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....here would then be no doubt that it was intended to operate only prospectively. But the legislature used some more words. It must have done so with some purpose. What that purpose was if it was not to give the subsection a retrospective operation, I fail to see. I am unable to read the words "subsequently" and "in any year" as otiose and as indicating no different intention. Therefore, it seems to me that the language of the sub-section is plainly requires it to have a retrospective operation. The sub-section is properly applicable to this case. There is another consideration leading me to the view that the presumption against retrospective operation does not arise here. It was said in Pardo v. Bingham (1869) L. R. 4 Ch. 735 that it was not an invariable rule that a statute could not have a retrospective operation unless so expressed in its very terms, and that it was necessary to look to the general scope and purview of the statute and at the remedy sought to be applied and consider what was the former state of the law and what it was that the legislature contemplated. It is quite plain that in providing for the grant of rebate on undistributed profits by the Finance Acts 1948 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent to its enactment, the amount on which rebate had been granted was utilised in declaration of dividends. Now is there any reason to think that the legislature did not want to impose the penalty also on those who had earlier utilised the amount in declaration of dividends ? There was no special merit in these latter cases. And I also think that they formed the majority of the cases. The grant of rebate having been stopped after March 31, 1956, there was no occasion to provide for cases of such grant thereafter. All these circumstances lead me to the view that the intention of the legislature was to penalise the cases of utilisation of amounts on which rebate had been granted in payment of dividends which had happened before the sub-section came into force. The remedy which the sub-section provided would largely fail in any other view. The general scope and purview of the sub-section and a consideration of the evil which it was intended to remedy lead me to the opinion that the intention of the legislature clearly was that the sub-section should apply to the facts that we have in this case. As to S. K. Habibullah's case I do not think that much assistance can be had from it. It....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee company declared on April 20, 1953, a dividend of Rs. 19,32,000 for the year of account 1952. The Income-tax Officer, by an order dated March 18, 1958, called upon the assessee company to show cause why action under section 35(10) of the Income-tax Act should not be taken to recall a proportionate part of the rebate because in his opinion the entire dividend of Rs. 19,32,000 came out of the undistributed profits of the calendar year 1951, on which the appellant had received a rebate. The assessee company objected saying that the 10th sub-section of section 35 was introduced as from April 1, 1956, and could not operate on an assessment which had become final before April 1, 1956, from which date sub-section (10) was retrospectively applied. The objection was not accepted and the Income-tax Officer held that dividend paid in the year 1952 came out of the undistributed profits of 1951 and a tax proportionate to the sum of Rs. 19,32,000 amounting to Rs. 1,20,750 was leviable. The assessee company filed a petition under article 226 of the Constitution. That application was heard along with another filed by the New Shorrock Spg. & Mfg. Co. Ltd., in which the leading judgmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ust be noticed that under this amendment time-limit started from the date of the final order passed in the case of the firm though the rectification is to be made in the assessment of the partners of the firm. By section 19 of the Finance Act, 1956, sub-section (10) (among others) was added as from April 1, 1956. That sub-section reads as follows : "(10) Where, in any of the assessment for the years beginning on the 1st day of April, of the years 1948 to 1955 inclusive, a rebate of income-tax was allowed to a company on a part of its total income under clause (i) of the proviso to Paragraph B of Part 1 of the relevant Schedules to the Finance Acts specifying the rates of tax for the relevant year, and subsequently the amount on which the rebate of income-tax was allowed as aforesaid is availed of by the company, wholly or partly, for declaring dividends in any year, the amount or that part of the amount availed of as aforesaid, as the case may be, shall, by reason of the rebate of income-tax allowed to the company and to the extent to which it has not actually been subject to an additional income-tax in accordance with the provisions of clause (ii) of the proviso in Paragraph....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter. Atmala Nagaraj's 1962] 46 I.T.R. 609 case followed Habibullah's 1962] Supp. 2 S.C.R. 716 case. The difference in the facts of the two cases was only in one respect and that was not sufficient to take Atmala Nagaraj's (supra) case out of the ratio of the earlier decision. We shall deal with these two cases later. The Income-tax Act imposes a charge of tax for a year at a time and that year is the year of assessment. The charge is in respect of a previous year which is commonly known as the year of account. The rate at which the tax is to be charged is enacted by an annual Finance Act for each assessment year. The assessment year is the financial year. From the nature of things an amendment of the Income-tax Act, made in the middle of the assessment year, if made to operate from the beginning of the assessment year, operates on incomes which had been earned before. Since an amendment cannot be allowed to operate from the mid-term, each such amendment is made to comprise a whole assessment year whether it be the assessment year then running or an earlier or a later assessment year. Amendments are thus given retrospective operation from the first day of April in the same or a p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the law must say that such is the jurisdiction, either expressly or by clear implication. If the language of the law has that clear meaning, it must be given that effect and where the language expressly so declares or clearly implies it, the retrospective operation is not controlled by the commencement clause. The amendment, with which we are concerned, was made by the Finance Act, 1956 (18 of 1956). By section 2, it dealt with the year beginning on the 1st day of April, 1956, and fixed the rates of taxes for the assessment year commencing on that date. It also amended the Income tax Act by section 3 to 35. Section 28 then prescribed the dates of commencement of these sections. It read : " 28 Commencements of amendments to Act 11 of 1922. - The amendments made in the Income-tax Act by section 4 and clause (b) of section 15 shall be deemed to have come into force on the 1st day of April 1955, and the amendments made by sections 3 to 27 inclusive shall come into force on the 1st day of April, 1956." Sub-section (10) was introduced into section 35 of the Income-tax Act by section 19 of this Act. If there was nothing more in the language of the sub-section to give it ope....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is merely a repetition of a historical facts for ready reference. The words "in any of the assessments for the years etc." show in respect of which assessments rectification would be possible. The years are mentioned individually by using the word any. The law speaking in 1956 was thus speaking of all the assessment years individually going back to 1st April, 1948. The language was clearly one of retrospectivity and the suggestion that there is no intent behind these words and that they merely refer to a historical facts is not acceptable to us. This conclusion is further fortified by the words : "and subsequently the amount...is availed of...for declaring dividends in any year..." Having mentioned the years individually in the opening part, an event is mentioned which is subsequent, namely, declaration of dividend from an amount on which rebate was allowed."Subsequently" here obviously means subsequent to "any of the assessments for the years beginning on the 1st day of April of the years 1948 to 1955 inclusive", not necessary subsequent to the amending Act. The declaration of dividends must be after the grant of the rebate. That is the only condition and it does not import th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ght well be a dead letter. The sub-section was obviously the result of noting how rebates were earned and later were being utilized to fill the pockets of the shareholders. The amendment met this situation and did it in very clear terms. It remains to consider the decisions of this court in Habibullah's case (supra) and Atmala Nagaraj's [1962] 46 I.T.R. 609 case. In those two cases this court was called upon to interpet sub-section (5) quoted above with was introduced as from April 1, 1952, by the Indian Income tax (Amendment) Act 1953. In both the cases there was a final assessment of the incomes of partners in registered firms. Later the assessment of the registered firms took place and it was found that the share of income of the partners was larger than what had been assessed. Under section 36(1), as it stood before sub-section (5) was introduced, rectification could be made in respect of a mistake apparent from the record and the records of the firms could not be read with those of the partners to find an error in the latter. There was thus an impasses. It was ruled by the Privy Council in Commissioner of Income tax v. Khemchand Ramdas (1938) L. R. 65 I. A. 236, 248, : "....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the firm were also before April 1, 1952, but the sub-section has nowhere said that the power was only to be exercised if the assessment of the firm was after that date. Such a meaning is also difficult to imply. Under a fiction created after April 1, 1952, the assessment of the partners disclosed a mistake and if the fiction and the rest of the sub-section were to be given their full and logical effect the assessment of the partners could be reopened and rectified. But it was held otherwise by this court. The main reason was that the partners' assessment had become final before April 1, 1952, that under the law, as it then stood, there was no error in their record, and sub-section (5) having been enacted retrospectively from April 1, 1952, could not be given more retrospectively. That the firms assessment was also before April 1, 1952, was not given as a reason and in any event it was not very relevant. It neither added to nor detracted from the finality (such as it was on February 22, 1952), on the partners' assessment. The law obviously mentioned the final order in the firms assessment as the starting point in view of the length of time the firms assessment take to reach their ....