S. S. Gadgil, Income-Tax Officer,
Bombay Vs. Lal and Company [1964] INSC 146 (30 April 1964)
30/04/1964 SHAH, J.C.
SHAH, J.C.
SUBBARAO, K.
SIKRI, S.M.
CITATION: 1965 AIR 171 1964 SCR (8) 72
CITATOR INFO:
R 1969 SC 778 (5)
ACT:
income Tax-Assessment as agent of
non-resident party-Time limit for issuing notice-Scope of amending statute
extending time 73 limit-Validity of notice-Indian Income-tax Act 1922 (11 of
1922). s. 34(1)(b)(iii) proviso.
HEADNOTE:
The appellant company was carrying on business
in Bombay as commission agents. In the course of assessment proceedings for the
year 1954-55, the Income-tax Officer noticed from the ssee's boo s of account
that the assessee had business connections with certain nonresident parties and
found that the transactions disclosed that through the assessee those
non-resident parties were receiving income, profits and gains. He considered
that s. 43 of the Indian Income-tax Act, 1922, was applicable to the assessee
and issued on March 27, 1957, a notice under s. 34 of the Act for assessment of
the assessee as an agent of the said nonresident parties. The assessee pleaded,
inter alia, that the proceedings intiated by the Income-tax Officer under s.
34 were barred since the notice issued by him
was after the expiry of one year from the end of the assessment year 195455,
but the Income-tax Officer rejected the contention relying on the amendment
made to the proviso to s. 34(l)(b)(iii) by the Finance Act, 1956, under which
the period of one year was changed to two years. The amendment was given
retrospective operation upto April 1, 1956, but since the power to issue a
notice under the unamended Act had come to an end on March 31, 1956, the
question was whether the Income-tax Officer could issue a notice of assessment
to a person as an agent of a non-resident party under the amended provision
when the period prescribed for such a notice had before the amended Act came
into force expired.
HELD:The proceedings initiated by the
Income-tax Officer by the notice dated March 27, 1957, were barred; the
authority of the Income tax Officer under the Indian Incometax Act before it
was amended by the Finance Act of 1956 having come to an end, the amending
provision would not entitle him to commence a proceeding even though at the
date when he issued the notice it was within the period provided by the
amendment.
Notwithstanding the fact that there was no
determinable point of time between the expiry of the time provided under the
old Act and the commencement of the Amendment Act, in the absence of an express
provision or clear implication, the legislature could not be said to have
intended to attribute to the Amending provision a greater retrospectivity than
was expressly mentioned.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 322 of 1963.
Appeal from the Judgment and order dated
April 1, 1958 of the former Bombay High Court in Miscellaneous Application No.
327 of 1957.
K.N. Rajagopala Sastry and R. N. Sachthey,
for the appellant.
74 Bishan Narain, S. P. Mehta, J. B. Dadachanji,
0. C. Mathar and Ravinder Narain, for the respondent.
April 30, 1964. The Judgment of the Court
was, delivered by SHAH J.--M/s Lal and Company hereinafter called the assessee
carry on business in Bombay as commission agents. In the course of assessment
proceedings for the year 1954-55 the assessee's books of account were examined
by the Income-tax Officer and it was noticed that the assessee had business
connections with certain non-resident parties. On March, 12, 1957, the
Income-tax Officer issued a notice calling upon the assessee to show cause why
in respect of the assessment year 1954-55 the assessee should not be treated
under s. 43 of the Indian Income-tax Act, 1922, as an agent in respect of
twenty-five non-resident parties named in the notice. The assessee denied that
he had "direct dealings" with any non-resident party and that in any
event the proposed action was barred because the period prescribed for
initiation of proceeding had expired, and requested the Income-tax Officer to
drop the proceeding. The Income-tax Officer B-III Ward, Bombay issued on March
27, 1957, a notice under s. 34 of the Indian Income-tax Act for assessment of
the assessee as an agent of the twenty five named non-resident parties. The
assessee submitted a return showing his income as "nil". The
Income-tax Officer held that the transactions disclosed from the books of
account of the assessee clearly showed that the assessee "had regular
business connection with" non-resident parties, that through the assessee
those non-resident parties were receiving income, profits and gains, and s. 43
was clearly applicable to the assessee there being definite business connection
between the assessee and the named non-residents. He therefore treated the
assessee as agent of the non-resident parties, under s. 43 of the Act.
The Income-tax Officer also rejected the
contention of the assessee that action under s. 34 was barred at the date of
the notice issued to the assessee. Relying upon the first proviso to s. 34(1)
(b) (iii) inserted by the Finance Act, 1956, the Income-tax Officer held that
the Legislature had 75 by amendment extended the "time-limit in clear and
express terms so as to cover" action under s. 34 against a person on whom
the assessment or reassessment is to be made as an agent of a non-resident
person under s. 43 of the Act for the assessment year 1954-55, and accordingly
assessed the income of the assessee at Rs. 60,684, estimating the income of the
parties residing outside the taxable territories, in the absence of accounts to
be Rs. 50,000.
The asessee then filed a petition under Art.
226 of the Constitution in the High Court of Judicature at Bombay praying that
a writ in the nature of mandamus or prohibition do issue restraining and
prohibiting the Income-tax Officer from giving effect to or taking any steps or
proceedings by way of recovery or otherwise in pursuance of the orders of
assessment. The assessee pleaded, inter alia, that the proceedings for
assessment under s. 34 of the Act commenced by the Income-tax Officer after the
expiry of one year from the end of the assessment year 1954-55 were without the
authority of law. The High Court of Bombay, following its earlier judgment in
S. C. Prashar v. Vasantsen Dwarkadas(1) held that at the date when the notice was
issued, by reason of the proviso which was in operation under s. 34(1) in
respect of the assessment year 1954-55 the notice was out of time and that the
period provided thereby could not be extended by the Finance Act of 1956 so as
to authorise the Income-tax Officer to issue a notice for assessment or
reassessment of the assessee as statutory agent of a party, residing outside
the taxable territory. In the view of the High Court the notice dated March 27,
1957, was invalid, and a valid notice being a condition precedent to the
exercise of jurisdiction under s. 34, the proceeding under s. 34 was not
maintainable. Against the order of the High Court issuing writs prayed for by
the assessee, with certificate of fitness this appeal is preferred by the
Income-tax Officer, Bombay.
In order to appreciate the contention raised
by the assessee and which has found favour with the High Court, it is necessary
to refer to the relevant provisions of s. 34, 76 as they stood before the
section was amended by the Finance Act, 1956. The clauses relevant prescribing
the period within which notice may be issued read as follows:
(1) (a) If x x x (b) x x x he may in cases
falling under clause (a) at any time within eight years and in cases falling
under clause (b) at any time within four years of the end of that year, serve
on the assessee, x x x a notice containing all or any of the requirements which
may be included in a notice under subsection (2) of section 22 and may proceed
to assess or reassess such income, profits or gains or recomputed the loss or
depreciation allowance; x x x Provided that(i) x x x (ii) x x x (iii) Where the
assessment made or to be made is an assessment made or to be made on a person
deemed to be the agent of non-resident person under section 43, this subsection
shall have effect as if for the periods of eight years and four years a period
of one year was substituted." By s. 18 of the Finance Act, 1956, s. 34 was
extensively amended and cl. (iii) of the proviso was substituted by the
following proviso:
"Provided further that the Income-tax
Officer shall not issue a notice under this sub-section for ,any year after the
expiry of two years from that year if the person on whom an assessment or
reassessment is to be made in pursuance of the notice is a person deemed to be
an agent of non-resident person under section 43." Initially a notice of
assessment or re-assessment under s. 34(1) against a person deemed to be an
agent of a non77 resident person under s. 43 could not be issued after the
expiry of one year from the end of the year of assessment:
under the amended section this period was
extended to two years from the end of the relevant assessment year. In the
course of assessment to income-tax for the year 1954-55 the relevant law
applicable prescribed that a notice of assessment or re-assessment against a
person deemed to be an agent under s. 43 could not be issued after the expiry
of one year from the end of the assessment year. That period expired on March
31, 1956, and after that date no notice could be issued, relying upon the law
as it stood before amendment for assessment or re-assessment treating the
assessee as an agent of a non-resident under s. 43. But the Income-tax Officer
sought recourse to the amended provision which gave him a period of two years
from the end of the assessment year, for initiating assessment proceedings, and
the authority of the Income-tax Officer to so act is challenged by the
assessee.
Section 18 of the Finance Act, 1956, is, it
is common ground, not given retrospective operation before April 1, 1956. The
question then is, whether the Income-tax Officer may issue a notice of
assessment to a person as an agent of a non-resident party under the amended
provision when the period prescribed for such a notice had before the amended
Act came into force expired? Indisputably the period for serving a notice of
re-assessment under the unlamented section had expired, and there was in the
Act as it then stood, no provision for extending the period beyond the end of
one year from the year of assessment. The Income-tax Officer could therefore
commence a proceeding under s. 34 on March 27, 1957, only if the amended
section applied and not otherwise. The amendinAct came into force after the
period provided for the issue of a notice under s. 34 before it was amended had
expired. It is true that there was no determinable point of time between the
expiry of the prescribed time within which the notice could have been issued
against the assessee under s. 34 proviso (iii) before it was amended. But there
was no overlapping period either. Prima facie, on the expiry of the period
prescribed by s. 34 as it originally stood, there was no scope for issuing a
notice unless the 78 Legislature expressly gave power to the income-tax Officer
to issue notice under the amended section notwithstanding the expiry of the
period under the unamended provision or unless there was overlapping of the
period within which notice could be issued under the old and the amended provision.
But counsel for the Commissioner submitted that at no time was the Income-tax
Officer bereft of authority to issue a notice under s. 34 of the Indian
Income-tax Act, 1922. He submitted that till the mid-night of March 31, 1956,
notice could be issued in exercise of the powers conferred by s. 34 proviso
(iii) before it was amended and notice of assessment or re-assessment could
also be issued under the amended provision immediately thereafter in exercise
of the powers conferred by s. 18 of the Finance Act, 1956. Counsel relied upon
the rule contained in s. 5(3) of the General Clauses Act that unless the
contrary is expressed, a Central Act or Regulation shall be construed as coming
into operation immediately on the expiration of the day preceding its
commencement. It was submitted that this is merely a statutory recognition of
the rule which is well--settled that where a statute names a date on which it
shall come into operation, it shall be deemed to come into force immediately on
the expiration of the previous day and the law does not take into consideration
fractions of a day.
Reliance was placed by counsel upon Tomlinson
v. Bullock(') and English v. Cliff(2). In Tomlinson's case(') the question was
whether an order of affiliation could be made on an application made in respect
of a child born at any time of the day an August 10, 1872 under the Bastardy
Act, 35 & 36 Vict. c. 65. In an application made for an order of
affiliation, it was held that the order could competently be made in respect of
a child born at any time of the day on the 10th of August, 1872, because the
Act in the contemplation of law for this purpose came into effect from the
commencement of the day on which it received the royal assent, and that
normally an Act which comes into operation becomes law as soon as it commences.
In English v. Cliff (2) it was held by the Court of Chancery (1) (1879) 4
Q.B.D. 230 (2) (1914) 2 Ch. D. 376 79 that the trustees under a deed of
settlement dated May 13, 1892, who stood possessed of an estate during the term
of twenty-one years from the date of settlement upon trust to apply the rents
and profits mentioned therein and who were authorised at the expiration of the
said period to sell the estate could competently sell it and their action was
not liable to be challenged as infringing the rule of perpetuity. It was held
in that case that the determination of the term of twenty-one years and the
conunencement of the trust for sale arising at one and the same moment, the
trust was not void for remoteness on the ground that it was limited to take
effect at the expiration of the term.
Neither of these cases has, in our judgment,
any application to the principle applicable in the present case. The power to
issue a notice under the unamended Act came to an end on March 31, 1956. Under
that Act no notice could thereafter be issued. It is true that by the amendment
made by s. 18 of the Finance Act, 1956, a notice could be issued within two
years from the end of the year of assessment. But the application of the
amended Act is subject to the principle that unless otherwise provided if the
right to act under the earlier statute has come to an end, it could not be
revived by the subsequent amendment which extended the period of limitation.
The right to issue a notice under the earlier Act came to an end before the new
Act came into force.
There was undoubtedly no determinable point
of time between the expiry of the earlier Act and the commencement of the new
Act; but that would not, in our judgment, affect the application of this rule.
Reliance was also placed by counsel for the
Commissioner upon the rule which has prevailed in the Supreme Court of the
United States of America that "a new statute should be construed as a
continuation of the old one with the modifications contained in the new one,
although it formally repeals the old statute, when it re-enacts its substantial
provisions and the two statutes are almost identical." Bear Lake &
River Water Works & irrigation Company and JarvisConklin Mortgage Trust
Company v. William Garland and Corey Brothers & Co.('). It appears (1) I64
U.S. 1 80 to have been recognised in the Supreme Court of the United states of
America in Pacific Mail S. S. Co. v. jolifee(1) that repeal in terms of a
former statute does not necessarily indicate an intention of the legislature
thereby to impair right which had arisen under the act which was repealed. As
the provisions of the new act took effect simultaneously with the repeal of the
old one, the Supreme Court held that the new one might more properly be said to
be substituted in the place of the old one, and to continue in force, with
modifications, the provisions of the old act, instead of abrogating or
annulling them and re-enacting the same as a new and original act. Apart from
the question whether the rule so enunciated is applicable to the interpretation
of Indian statutes, in this case we are not concerned with re-enactment of a
statute. The statute abrogates one rule of limitation, and enacts another rule
with a limited retrospective operation. To such a case the rule enunciated by
the Supreme Court of America, assuming it applies, attributing to the
Legislature an intention to continue in force the provisions of the old Act,
with a modification, so as to give to the new statute in substance operation
retrospectively from the date on which the old statute was enacted, can have no
application. We do not think that any such intention may be attributed to the
Legislature in enacting s. 18 of the Finance Act, 1956 so as to make it the
basis of a liability to taxation after the expiry of the period prescribed in
that behalf by the Legislature-.
Counsel also submitted that s. 34 lays down a
rule of limitation for commencing an action for assessment or reassessment, and
that in the absence of an express provision to the contrary, a statute of
limitation in operation at a given time governs all proceedings from the moment
of its enactment, even though the cause of action on which the proceeding was
based came into existence before the Act was enacted. Equating a proceeding
under s. 34 of the Indian Income-tax Act with a suit or a proceeding in a civil
court, counsel said that the law of limitation being a law of procedure,
assessment proceedings including proceedings for re-assessment are governed by
the law in force (1) 69 U.S. (2 Wall) 459 81 at the date on which they are
instituted, and that the rule that the repeal of a statute without express
words or clear implication in the repealing statute, cannot take away a right
vested in a party acquired under the repealed statute when it was in force, is
a rule of prescription and not of procedure, and notwithstanding general
observations to the contrary in certain decisions, applies only to those
actions in which by the determination of the period prescribed, a right to
institute an action for possession of property is extnguished. Counsel relies
in support of the plea on Baleswar v. Latafat(1). It is unnecessary to dilate
upon this argument in any detail, or to enter upon an analysis of the numerous
cases which were mentioned at the Bar to determine whether the rule that
without an express provision, or a clear implication arising from the amending
statute rights acquired under the repealed statute by the determination of the
period of limitation prescribed thereby cannot be deemed to be revived, applies
to suits for possession only. It may be sufficient to make two comments on the
argument. The rule has in fact been applied to suits other than suits for
possession: e.g. Mahomed Mehdi Faya v. Sakinabai(2) (a suit for restitution of
conjugal rights); M. Krishnaswami Nalcker v. A. Thiruvengada Muddaliar(3) (a
suit for recovery of a debt); Shambhoonath Saha v. Guruchurn Lahiri (4) (an
application for execution); and Nepal Chandra Roy Chowdhury v. Niroda Sundari
Ghose(5) (an application for setting aside an ex parte decree). Again soon
after it was delivered the the authority of Baleswar's case(') was weakened by
the judgment in Jagdish v. Saligram(6) where the Court doubted the correctness
of the earlier view.
A proceeding for assessment is not a suit for
adjudication of a civil dispute. That an income-tax proceedings it; the nature
of a judicial proceeding between contesting parties, is a matter which is not
capable of even a plausible argument. The Income-tax authorities who have power
to assess and recover tax are notacting as judges deciding a (1) I.L.R. 24 Pat.
249 (2) I.L.R. 37 Bom. 383 (3) A.I.R. (1935) mad. 245(4) I.L.R. 5 Cal. 894 (5)
I.L.R. 39 Cal. 506 (6) I.L.R. 24 Pat. 391 51 S.C.-6. 82 litigation between the
citizen and the States: they are administrative authorities whose proceedings
are regulated by statute, but whose function is to estimate the income of the
taxpayer and to assess him to tax on the basis of that estimate. Tax
legislation necessitates the setting up of machinery to ascertain the taxable
income, and to assess tax on the income, but that does not impress the
proceeding with the character of an action between the citizen and the State:
The Commissioner of Inland Revenue v. Sneath(1); and Shell Company of Australia
Ltd. v. Federal Commissioner of Taxation(').
Again the period prescribed by s. 34 for
assessment or reassessment is not a period of limitation. The section in terms
imposes a fetter upon the power of the Income-tax Officer to bring to tax
escaped income. It prescribes different periods in different classes of cases
for enforcement of the right of the State to recover tax. It was observed by
this Court in Ahmadabad Manufacturing and Calico Printing Co. Ltd. v. S. C.
Mehta. Income-tax Officer and another('):
"It must be remembered that if the
Income-tax Act prescribes a period during which tax due in any particular
assessment year may be assessed, then on the expiry of that period the
department cannot make an assessment. Where no period is prescribed the
assessment can be completed at any time but once completed it is final. Once a
final assessment has been made, it can only be reopened to rectify a mistake
apparent from the record (s. 35) or to reassess where there has been an
escapement of assessment of income for one reason of another (s. 34). Both
these sections which enable reopening of back assessments provided their own
periods of time for action but all these periods of time, whether for the firs
assessment or for rectification, or for reassess ment, merely create a bar when
that time passe( (1) 17 T.C. 149) 164 (2) [1931) A.C. 275 (3) [1963] SUPP. 2
S.C.R. 92,117-118 83 against the machinery set up by the Incometax Act for the
assessment and levy of the tax. They do not create an exemption in favour of
the assessee or grant an absolution on the expiry of the period. The liability
is not enforceable but the tax may again become exigible if the bar is removed
and the taxpayer is brought within the jurisdiction of the said machinery by
reason of a new power.
This is, of course, subject to the condition
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." Counsel for the
Commissioner sought to derive some support from Income-tax Officer, Companies
District I, Calcutta and another v. Calcutta Discount Company Ltd.(') in which
Chakravartti C.J., dealing with the effect of the Income-tax and Business
Profits Tax (Amendment) Act, 1948, observed:
"The plain effect of the substitution of
the new s. 34 with effect from 30th March, 1948 is that from that date the
Income-tax Act is to be re-ad 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 cl. (a) of sub-s. (1) are
concerned all assessment years ending within eight years from 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 30th March, 1948.
(1) 23 I.T.R. 471 84 But it may be recalled
that the amending Act of 1948 with which the Court was concerned in Calcutta
Discount Company's case(1) came into force on September 8, 1948, but s. 1(2)
prescribed that the amendment in s. 34 of the Income-tax Act, 1922, shall be
deemed to have come into force on March 30, 1948, and the period under the
unamended section within which notice could be issued under s. 34(3) against
the assessee company ended on March 31, 1951. Before that date the amending Act
came into operation, and at no time had the right to re-assess become barred.
In considering whether the amended statute
applies, the question is one of interpretation i.e., to ascertain whether it
was the intention of the Legislature to deprive a taxpayer of the plea that
action for assessment or reassessment could not be commenced, on the ground
that before the amending Act became effective, it was barred. Therefore the
view that even when the right to assess or re-assess has lapsed on account of
the expiry of the period of limitation prescribed under the earlier statute,
the Income-tax Officer can exercise his powers to assess or re-assess under the
amending statute which gives an extended period of limitation, was not accepted
in Calcutta Discount Company's case(').
As we have already pointed out, the right to
commence a proceeding for assessment against the assessee as an agent of a
non-resident party under the Income-tax Act before it was amended, ended on
March 31, 1956. It is true that under the amending Act by s. 18 of the Finance
Act, 1956, authority was conferred upon the Income-tax Officer to assess a
person as an agent of a foreign party under s. 43 within two years from the end
of the year of assessment.
But authority of the Income-tax Officer under
the Act before it was amended by the Finance Act of 1956 having already come to
an end, the amending provision will not assist him to commence a proceeding
even though at the date when he issued the notice it is within the period
provided by that amending Act. This will be so, notwithstanding the fact that
there has been no determinable point of time between the expiry of the time
provided under the old Act and the (1) 23 I.T.R. 471.
85 commencement of the amending Act. The
Legislature has given to s. 18 of the Finance Act, 1956, only a limited
retrospective operation i.e., upto April 1, 1956, only.
That provision must be read subject to the
rule that in the absence of an express provision or clear implication, the
Legislature does not intend to attribute to the amending provision a greater
retrospectivity than is xpressly mentioned, nor to authorise the Income-tax
Officer to commence proceedings which before the new Act came into force had by
the expiry of the period provided, become barred.
The appeal fails and is dismissed with costs.
Appeal dismissed.
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