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Commissioner of Income-tax Vs. Smt. Eva Raha - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberIncome-tax Reference No. 56 of 1975
Judge
ActsIncome Tax Act, 1961 - Sections 254, 254(2), 271 and 271(1); Direct Taxes (Amendment) Act, 1974 - Sections 13
AppellantCommissioner of Income-tax
RespondentSmt. Eva Raha
Appellant AdvocateG.K. Talukdar and D.K. Talukdar, Advs.
Respondent AdvocateNone
Excerpt:
- - the order of penalty was imposed under section 271(1)(a) of the act on march 15, 1973. 7. the assessee preferred appeals before the aac in respect of both the assessment orders being aggrieved by the order of assessment as well as the orders of penalty imposed by the ito in respect of both the assessment years. there is a well known maxim, omnis nova constitutio futuris temporibus forman imponere debet non praeteritis, i. or if by necessary implication from the language employed it can be gathered clearly that the legislature intended a particular section to have a retrospective operation. and so the question which falls to be considered in the present appeal centres round the construction of the expression 'mistake apparent from the record 'used in section 35. that is why we think..... lahiri, j. 1. ' whether, on the facts and in the circumstances of the case, the tribunal was legally correct in refusing to rectify its orders dated may 30, 1974, in i.t.a. no. 709 (gau) of 1972-73, and dated may 31, 1974, in i.t.a. no. 710 (gau) of 1972-73, having regard to the provisions of section 13 of the direct taxes (amendment) act, 1974, on the ground that it was a debatable point and so no rectification order can be passed under section 254(2) of the income-tax act, 1961, relating to the assessment! years 1961-62 and 1962-63 '2. the above common question has been referred to the high court under section 254(4) of the i.t. act, 1961, for short ' the act ' by the income-tax appellate tribunal, gauhati bench at gauhati.3. relevant facts leading up to the reference may be summarised.....
Judgment:

Lahiri, J.

1. ' Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in refusing to rectify its orders dated May 30, 1974, in I.T.A. No. 709 (Gau) of 1972-73, and dated May 31, 1974, in I.T.A. No. 710 (Gau) of 1972-73, having regard to the provisions of Section 13 of the Direct Taxes (Amendment) Act, 1974, on the ground that it was a debatable point and so no rectification order can be passed under Section 254(2) of the Income-tax Act, 1961, relating to the assessment! years 1961-62 and 1962-63 '

2. The above common question has been referred to the High Court under Section 254(4) of the I.T. Act, 1961, for short ' the Act ' by the Income-tax Appellate Tribunal, Gauhati Bench at Gauhati.

3. Relevant facts leading up to the reference may be summarised as

follows :

4. For the assessment year 1961-62, the return of income of the assessee was due for submission on July 21, 1961. Similarly for the assessment year 1962-63, return of income was due for submission on June 30, 1962. The assessee filed the returns on June 5, 1963, and October 15, 1965, respectively. The Income-tax Officer, for short the ' ITO ', initiated penalty

proceedings under Section 271(1)(a) of ' the Act ' for delayed filing of the returns and levied penalties on the assessee for both the assessment years.

5. The assessee being aggrieved by the order of assessment and levy of penalty in respect of the assessment year 1961-62, filed two appeals before the Appellate Assistant Commissioner, for short ' the AAC ', against the order of assessment and levy of penalty. The AAC set aside the assessment order on November 30, 1968, with a direction to the ITO to make fresh assessment for the said assessment year 1961-62. The AAC also cancelled the original penalty order on the ground that the assessment on the basis of which penalty order had been imposed stood vacated and/or set aside by the AAC and directed that fresh penalty order might be made on the basis of fresh assessment. A fresh assessment order was made on September 30, 1969. No provisional assessment had earlier been made and the assessee had not made any advance payment of tax. As a result of the fresh assessment made on September 30, 1969, the tax payable was determined at Rs. 12,893. The ITO, therefore, passed a fresh penalty order under Section 271(1)(a) of the Act on September 25, 1971, imposing a penalty of Rs. 5,676 which was computed at the rate of 2% of Rs. 12,893 per month for 22 months of default in filing the return.

6. Being aggrieved by the assessment order and penalty in respect of the assessment year 1962-63, the assessee filed two appeals and the AAC set aside both the orders with similar directions as in respect of the assessment year 1961-62. On remand, the ITO, for the assessment year 1962-63, made fresh assessment and determined the tax payable at Rs. 11,443 after crediting an advance tax of Rs. 3,390 paid by the assessee. Thereafter, the ITO imposed a penalty of Rs. 5,772 computed at the rate of 2% of the tax payable on Rs. 11,443 for 48 months of default, but limited it to 50% of the tax payable. The order of penalty was imposed under Section 271(1)(a) of the Act on March 15, 1973.

7. The assessee preferred appeals before the AAC in respect of both the assessment orders being aggrieved by the order of assessment as well as the orders of penalty imposed by the ITO in respect of both the assessment years. On appeal, the AAC found that for the assessment year

1961-62, after the tax had been paid by the assessee against the original assessment a sum of Rs. 225 was the balance net tax payable by the assessee. Accordingly, the AAC reduced the penalty to Rs. 100 ; the amount of tax paid by the assessee against the original assessment was reckoned by the AAC as tax demanded originally against the regular assessment, which had been paid before the imposition of penalty. For the assessment year

1962-63, the AAC held that by the time the penalty order was passed the assessee had paid a considerable amount as a result of which a sum of Rs. 9,997 was refundable to the assessee and, therefore, there was no net

tax payable by the assessee for the assessment year on the date of penalty and accordingly held that no penalty could be imposed on the assessee and cancelled the penalty order.

8. The department being aggrieved by the orders passed by the AAC under Section 271(1)(a) for both the assessment years preferred appeals. The appeals were registered as I.T.A. Nos. 709 (Gau) and 710 (Gau) of 1972-73. The Tribunal relied on CIT v. Vegetable Products Ltd. : [1973]88ITR192(SC) and held in both the appeals that as there had been no net tax payable after giving credits of tax paid by the assessee on the date of imposition of penalty no penalty was imposable and dismissed both the appeals preferred. Thereafter, the Direct Taxes (Amend.) Act, 1974, for short ' the Amendment Act ', was enforced on August 18, 1974. Section 13 of the Amendment Act amended the provisions of Sections 271(1)(a) and 271(1)(i) with retrospective effect. Section 13 of the Amendment Act is quoted hereinbelow :

' 13. Amendment of Section 271.--In Section 271 of the Income-tax Act, for Clause (i) of Sub-section (1), the following clause shall be substituted and shall be deemed always to have been substituted, namely :--

' (i) in the cases referred to in Clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the assessed tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the assessed tax.

Explanation.--In this clause ' assessed tax ' means tax as reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C.'

9. Three factors stare on the face of the section : firstly, Clause (i) of Sub-section (1) of Section 271 of the Act has been substituted and ' shall be deemed always to have been substituted ' with retrospective effect, as if it had been in the statute book from the inception of the Act by virtue of the deeming provision. Secondly, penalty is now computable on the basis of assessed tax after deducting therefrom the amount of advance tax paid and tax deducted at the source, if any, Thirdly, in the cases referred to iri Clause (a) of Section 271 of the Act, in addition to the amount of tax, if any, payable by the assessee, a sum equal to 2% of the assessed tax for every month during which the penalty continued but not exceeding in the aggregate 50% of the assessed tax shall be imposable.

10. In view of the enforcement of the Amendment Act the department filed two Misc. Applications being Nos, 21 (Gau) and 22 (Gau) of 1974-75 to the Tribunal praying for rectification of the order of the Tribunal in I.T.A. Nos. 709 (Gau) and 710 (Gau) of 1972-73, dated May 30, 1974, and May 31, 1974. The Tribunal heard the parties, considered the applications and held that it passed the orders in the appeals on May 30, 1974, and May 31, 1974, whereas the Amendment Act came into force on and from August 18, 1974, and as such, at the time when the Tribunal passed the orders in the appeals they were in accordance with the then law prevalent. It held that it could rectify its order under Section 254(2) of the Act ' when there was any mistake apparent from the record '. It relied on a decision of the Bombay High Court J. M. Shah v. J. N. Bhatiah, AAC : [1974]94ITR519(Bom) and held : ' It was debatable point of law as to whether the amending provisions apply to a completed assessment against which no further proceedings were pending at the date of enactment of the amending provision as in that case. ' The Tribunal held that in the instant cases there were completed assessments and according to the Tribunal it was a debatable point as to whether the amending provision applied to completed assessments and, therefore, no rectification order could be passed by the Tribunal under Section 254(2) of the Act and rejected both the miscellaneous applications.

11. Being aggrieved, the department successfully sought for a reference and hence the matters are before this court being referred by the Tribunal under Section 256 of the Act.

12. The concluded finding of the Tribunal is that it has the power to rectify any order under Section 254(2) of the Act at any time within four years from the date of the order if there is any mistake apparent from the record and has power to amend any order passed by it in exercise of its power under Section 254(1) of the Act when the said mistake is brought to its notice by the assessee or the ITO. The Tribunal refused to exercise the power under Section 254(2) of the Act on the score that the assessment had been completed.

13. It is undoubtedly true that when the orders were rendered by the Tribunal they were made in accordance with the law as it then stood. However, the language of the relevant provision of the Amendment Act is clear to indicate that Section 271(1) of the Act stood substituted on and from the date of commencement of the Income-tax Act, 1961. The retrospective effect given by the Amendment Act is couched in the following language :

' The following shall be substituted and shall be deemed always to have been substituted......'

(Emphasis* added)

14. Therefore, the main question is to determine the true legal effect of the retrospective operation of the provision of Section 13 of the Amendment Act. It expressly provides that the amendment made in the section shall not only be substituted but shall be deemed always to have been substituted in the principal Act. The consequence is that the amendment made in the principal Act by Section 13 of the Amendment Act must, by legal fiction, be deemed to have been always included in the principal' Act and it inevitably means that when the Tribunal passed its order allowing the appeals of the assessee (sic), Section 271(1)(i) must be deemed to have been inserted in the Act.

15. A statute is deemed to be retrospective which takes away or impairs any vested right acquired under existing clause or creates a new obligation, or imposes a new duty, or attaches a new disability relating to transactions or considerations already passed. The general rule is that no statute shall be construed so as to have a retrospective operation unless the language is such as plainly to require such a construction. A subsidiary rule is that a statute is not to be construed so as to have a greater retrospective operation than its language renders necessary. Whether on general principles a statute ought to be held to operate retrospectively, the general rule is that except when there is a clear indication (1) either from the subject-matter or (2) from the wording of a statute, it is not to receive a retrospective operation. It is necessary to look at the general scope and purview of the statute and at the remedy sought to be applied, and consider the unamend-ed law and what it was that the legislature contemplated. Retrospectivity cannot be presumed. However, there is nothing to prevent Parliament from making an Act retrospective if the intention to do so is apparent. The competency of the legislature to enact a retrospective statute cannot be questioned. There is a well known maxim, omnis nova constitutio futuris temporibus forman imponere debet non praeteritis, i.e., except in special cases the new law ought to be construed so as to interfere as little as possible with vested rights. The maxim is applicable when the words of an Act of Parliament are not plain and clear. Even in construing a section, which is to a certain extent retrospective, the maxim may be made applicable when we reach a point at which the words of the section cease to be plain. This naturally brings into play the principle that one ought not to give a larger retrospective power to a section, even in an Act which is to some extent intended to be retrospective; then one can plainly see the legislative intent to the contrary. Presumption against retrospectivity can be rebutted or the general rule can be departed when it is expressly enacted that an enactment shall be retrospective; or if by necessary implication from the language employed it can be gathered clearly that the legislature intended a particular section to have a retrospective operation. In the instant case, the use of the expressions contained in Section 13 of the 'Amendment Act ' stating that Section 271(1)(a) as amended shall be inserted and shall always be deemed to have been inserted in' the 'parent Act' inevitably leads to the conclusion that the effect of retrospective operation is that the amendment inserted in Section 271(1)(i) of the 'parent Act' would, for all legal purposes, have to be deemed to have been included in the Act on and from the date of operation of the I.T. Act, 1961.

16. In this regard there is no dispute nor can there be any dispute and this proposition has been accepted as the correct proposition of law by the Tribunal and also by the learned and noble judge of the Bombay High Court in J. M. Shah's case : [1974]94ITR519(Bom) . However, the Tribunal held that it was a debatable point of, law as to whether the amending provisions applied to a completed assessment against which no further proceedings were pending at the date of enactment of the amending provision. It held that the applicability of the amending provision to the completed assessment was a debatable point and as such it had no power of rectification as the error which could give jurisdiction to the Tribunal to initiate rectification proceeding must be ' a mistake apparent from the record '. According to the Tribunal, the mistake could not be treated as ' apparent ' and as such it held that it had no jurisdiction to initiate rectification proceedings under Section 254 of the I.T. Act. It relied on the opinion expressed by the hon'ble Bombay High Court in J. M. Shah's case : [1974]94ITR519(Bom) .

17. Therefore, the relevant question is whether the retrospective operation is intended to affect completed assessment and if so to what extent they can affect completed assessment. In Venkatachalam, ITO v. Bombay Dyeing and . : [1958]34ITR143(SC) , Section 1(2) of the Indian I.T. (Amend.) Act, 1953, expressly provided that, subject to special provision made in the Act it should be deemed to have come into force on the 1st day of April, 1952, and it was held that if any assessment proceeding in respect of the assessee's income for a period subsequent to April 1, 1952, were pending at the time when the Amendment Act had been passed the proviso inserted by Section 13 of the Amendment Act would govern the decision in such assessment proceedings. However, it was questioned before their Lordships that where an assessment proceeding had been completed and an assessment order had been passed against the assessee such a completed assessment would not be affected and would not be reopened in exercise of the power to rectify the order of assessment under Section 35 of the Indian I.T. Act, 1922, by virtue of the retrospective operation of the Amendment Act. In short, the argument advanced before their Lordships was that the finality of the orders passed cannot be impaired by the retrospective operation of the relevant provision. Gajendragadkar J., speaking for the. Supreme Court, in Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. : [1958]34ITR143(SC) observed as under (p. 147) :

' In our opinion, this argument does not really help the respondent's case because the order passed by the Income-tax Officer under Section 18A(5) cannot be said to be final in the literal sense of the word. This order was and continued to be liable to be modified under Section 35 of the Act. What the Income-tax Officer has purported to do in the present case is not to revise his order in the light of the retrospective amendment made by Section 13 of the Amendment Act alone, but to exercise his power under Section 35 of the Act; and so the question which falls to be considered in the present appeal centres round the construction of the expression ' mistake apparent from the record ' used in Section 35. That is why we think the principle of the finality of the orders or the sanctity of the existing rights cannot be effectively invoked by the respondent in the present case.'

18. In our case, we are to read in the above observations Sections 271(1)(a)(i) and 254(2) of the I.T. Act, 1961, instead of Sections 18A(5) and 35, respectively. There cannot be any dispute that the Appellate Tribunal had power of rectification in respect of any appellate order if it attracted the provisions of Section 254(2) of the parent Act. As such the orders of the Appellate Tribunal in the appeals were not final in the literal sense of the term. The orders were and continued to be subject to modification or rectification under Section 254(2) of the Act. What the Appellate Tribunal was asked to do in the present cases was, not to revise its order in the light of the retrospective amendment made by Section 13 of the Amendment Act alone independently of the provisions of Section 254, but it was asked to exercise its power under Section 254(2) read with Section 271(1)(a)(i) of the Act. Therefore, the contention that the finality of the order passed by the Appellate Tribunal could not be impaired by the retrospective operation of Section 271(1)(a)(i) did not arise as the orders rendered by the Tribunal were not final in the literal sense of the term.

19. The effect of the amendment made is to give effect to the amendment from 1961, although the amendment was enacted in the year 1974. This significant aspect cannot be brushed aside. The resultant effect of the amendment giving it a retrospective effect is to authorise or to make it obligatory on the authorities to revise their orders in the light of the amendments. The authority or the obligation is unlimited. However, the Appellate Tribunal could not have exercised its power of rectification under Section 254 beyond the period of ' four years from the date of the order '. After the said period the order of the Appellate Tribunal becomes final. As such, in view of the amendments made, the appellate authority could exercise its power of rectification under Section 254(2) of 'the Act' within the period of four years from the date of its order read with Section 271(1)(a)(i) of 'the Act', as amended, with retrospective effect. However, it cannot exercise its power under Section 254(2) of the Act beyond the period of four years from the date of its order taking resort to the provisions of Section 271(1)(a)(i) independently.

20. The next aspect that falls for our attention is whether the view expressed gives greater retrospective operation of the Amendment Act than its language and its general scheme rendered necessary. If we turn to the amendment of Section 271(1)(a)(i) we notice that the main object of the introduction of the amendment is to extend the relevant provision on and from the date of the operation of the ' parent Act '. The language used in the Amendment Act providing for retrospective operation of the relevant provision did not make any distinction between assessment completed or continuing before the commencement of the Amendment Act. However, the Amending Act did not empower the authorities to reopen the closed cases or completed assessment in any of the provisions contained in the Amendment Act itself. Therefore, any order passed, although apparently final but continued to be and was liable to be modified under the parent Act, could be reopened or rectified by virtue of the provisions of the parent Act, within the period prescribed therein and within the limitations imposed in exercise of the power of correction, rectification or modification under the provisions of the parent Act.

21. In Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. : [1958]34ITR143(SC) , while dealing with a similar question, the Supreme Court observed while interpreting the provisions of the Indian I.T. (Amend.) Act, 1953, as under (p. 149) :

' In other words, a distinction can be drawn between these two provisions of the Amendment Act and the rest in respect of the power which the Income-tax Officer can purport to exercise to give effect to the amendments made by the Amendment Act. Whereas, in respect of the amendments made by Section 7 and Section 30 of the Amendment Act, the Income-tax Officer can and must revise his earlier orders covered by Section 7, Sub-section (2) and Section 30, Sub-section (2), such a power of revision has not been conferred on him in the matter of giving effect to the other amendments made in the Amendment Act. Even so, we do not think it would be legitimate or reasonable to hold that the provisions of Section 7(2) and Section 30(2) lead to the inference That the retrospective operation of the other provisions of the Amendment Act is not intended to affect concluded assessments in any manner whatever. In this connection it would be pertinent to remember that the power to revise which has been conferred on the Income-tax Officer by Section 7(2) and Section 30(2) of the Amendment Act is distinct and independent of the power to rectify mistakes which the Income-tax Officer can exercise under Section 35 of the Act. ' (Emphasis* added).

22. In this light the extent of the Tribunal's power under Section 254(2) to rectify mistakes apparent from the record must be determined. While doing so we must , ascertain the true scope and effect of the expression ' mistake apparent from the record '. In the instant case, at the time when the Tribunal applied its mind to the question of rectifying the alleged mistake, it had to read the principal Act as containing the inserted provision of Section 271(1)(a)(i) of the Act, inserted from the date of the commencement of the principal Act. If that be the true position then the orders which it made were plainly and obviously inconsistent with the provisions of the statute and they must inevitably be treated as mistakes of law apparent from the record. In this regard the relevant observation of Gajendragadkar J., in Venkatachalam, 1TO v. Bombay Dyeing and Mfg. Co, Ltd. : [1958]34ITR143(SC) is quoted below (p. 150) :

' If a mistake of fact apparent from the record of the assessment order can be rectified under Section 35, we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified. Prima facie it may appear somewhat strange that an order which was good and valid when it was made should be treated as patently invalid and wrong by virtue of the retrospective operation of the Amendment Act. But such a result is necessarily involved in the legal fiction about the retrospective operation of the Amendment Act. If, as a result of the said fiction, we must read the subsequently inserted proviso as forming part of Section 18A(5) of the principal Act as from April 1, 1952, the conclusion is inescapable that the order in question is inconsistent with the provisions of the said proviso and must be deemed to suffer from a mistake apparent from the record. '

23. Therefore, in the instant case, the orders which had been rendered by the Tribunal were good and valid when they were so rendered. But the orders so rendered are patently invalid and wrong by virtue of the retrospect tive operation of the Amendment Act. Therefore, when the application for rectification was made within the period of limitation prescribed under Section 254(2) of the Act as a result of the retrospective operation of the Amendment Act, the conclusion is now inescapable that the order in question is inconsistent with the provision of the Amended Act and ' must be deemed to suffer from a mistake apparent from the record ' and that is why the applications for rectification ought to have been entertained and disposed of by the Tribunal. The Tribunal had power under Section 254(2) to rectify the mistake.

24. The above conclusion is reached on the basis of the decision of the Supreme Court in Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. : [1958]34ITR143(SC) and the same is binding on all the High Courts and is the law of the land. The above principles of law dealing with the question as to the meaning of the expression ' mistake apparent from the record ' has remained unchanged.

25. However, the Tribunal was impressed by certain observations made in J.M. Shah : [1974]94ITR519(Bom) , a decision of the Bombay High Court. Even assuming that the view expressed in J. M. Shah is in a different key or note than that of Venkatachalam, ITO : [1958]34ITR143(SC) , the Tribunal was bound by the decision of the Supreme Court.

26. In J. M. Shah : [1974]94ITR519(Bom) , the crucial question which came up for consideration was whether the amending provision applied to a completed assessment against which no further proceedings were pending on the date of the amending provision. In the said case, in the wealth-tax assessment of the assessee for the assessment year 1969-70, the AAC excluded from the assessment of the wealth of the petitioner an amount of Rs. 4,15,942 being the value of jewellery and ornaments on the ground that they were intended for the personal use of the assessee in accordance with the provision of Section 5(1)(viii) of the W.T. Act, 1957, by his order dated June 26, 1970. No further appeal was filed against the decision of the AAC by either side and it became final after the period provided for appeal against the same had expired. It may be stated that that period had expired 'long before the amending Act was enacted.' By Section 32 of the Finance (No. 2) Act, 1971, which received the assent of the President on August 10, 1971, Parliament amended Section 5(1)(viii) of the Act providing that the said section, as amended, ' shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 1963 '. Notwithstanding the expiry of the period of appeal and the order becoming final as contemplated under the Act, the AAC served the assessee with a notice dated February 3, 1972, proposing to rectify the wealth-tax assessment of the assessee under Section 35 of the Act. The assessee questioned the jurisdiction of the AAC to rectify the error when the order had become final long before the enactment of the ' Amendment Act '. The objection of the assessee was turned down and the assessee questioned the validity of the order of rectification made by the AAC before the High Court. It was urged on behalf of the petitioner that the authority had no power to rectify the order in view of the fact that there was no error apparent on the face of the record because, (A) the original assessment when made was in accordance with law ; and (B) the question as to whether the Amending Act applied to assessment which had already been completed was, in any event, a debatable question. The High Court rejected the contention ' (A) ' relying on Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. [1958] 34 ITR 443. While considering the contention '(B)', the High Court has observed that in Venkatachalam, ITO, the Supreme Court had not had the occasion to consider the further question as to whether the power of rectification could have been invoked had it come to the conclusion that it was an arguable question ; the said decision of the Supreme Court does lay down that a deeming fiction couched in words similar to the words used in the case should be construed as intending to affect even completed assessments. The High Court in J. M. Shah : [1974]94ITR519(Bom) :

'......it is true that what the Supreme Court did in the said case was to

construe a particular provision of a particular Amending Act, but in so far as there is a great similarity in the language used in the Amending Act in the said case and in the present case in regard to the retrospective operation of the amending provision, the said case does undoubtedly support Mr. Joshi's contention before us that such provisions must be held to affect even completed assessments. ' (Emphasis* added).

27. As such the High Court held that there was great similarity in the language used in the amending Acts and the Supreme Court held in Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. : [1958]34ITR143(SC) that such provisions ' must be held to affect even completed assessments '.

28. However, their Lordships in J. M. Shah [1914] 94 ITR 519 relied on ITO v. S. K. Habibullah : [1962]44ITR809(SC) and other decisions of the Supreme Court dealing with the effect of the amendment of Section 35(5) of the Indian I.T. Act, 1922, and concluded that it was a debatable question as to whether a completed assessment was intended to be affected by the amendment in the said case and it held that the authority had no power of rectification under the said section in respect of completed assessments. In ITO v. S. K. Habibullah : [1962]44ITR809(SC) , the assessment of the respondent was completed before April 1, 1952. Rectification of the partner's assessment was made on the basis of a mistake discovered in the record of the partnership firms and by application of the amended new provision of Sub-section (5) of Section 35 made operative retrospectively from April 1, 1952. The legality of this action was questioned before the Supreme Court. The sole question for determination of the Supreme Court was whether assessments which had been completed before April 1, 1952, could be reopened by an application of the amended new provision of Sub-section (5) of Section 35. Their Lordships held that Sub-section (5) as added would have no application to the case and the authority had no jurisdiction under the amended provision to rectify the assessment of a partner consequent upon the assessment or reassessment of the firm disclosing an error in the record of the firm entered prior to April 1, 1952. The partners' assessment was admittedly completed before April 1, 1952. He was the partner of M/s. D and M/s. P and the firms were registered under the Act. The partner submitted his returns of income for two years 1946-47 and 1947-48 and his assessment was completed on February 20, 1950. Assessment of M/s. D was completed for the aforesaid years on October 31, 1950. Assessment of M/s. P was completed on June 30, 1951. On May 4, 1953, notices were served on the paftner to show cause why his assessment for the years 1946-47 and 1947-48 should not be rectified under Section 35 of the Act. The assessee wrote to the ITO as under ; ' This is to inform you that I had no objection in completing the assessment of the previous year in accordance with law.' On March 27, 1954, the ITO revised the assessment of the assessee in respect of the two years after taking into account the share of losses as computed in the assessment of the two firms. The assessee died on April 17, 1954, and the respondent, Habibullah, applied to the CIT, Madras, for revision of the order but the Commissioner held that Section 35 of the Act had been properly invoked in rectifications of the assessments. The High Court of Madras quashed the order of the ITO ; the department appealed to the Supreme Court and urged that under Section 35(5) which was incorporated by Section 19 of the I.T. (Amend.) Act, 1953, with effect from April 1, 1953, the ITO had power to rectify the orders. The clause which was incorporated by Section 19 of the Amendment Act was in the following terms :

' (5) Where in respect of any completed 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.'

29. This clause was one of the clauses added by the Amendment Act. It dealt with the inclusion of income or correction of the income of a partner in a firm consequent upon assessment or reassessment of a firm of which he was a partner. In the clauses other than Clause (5), the legislature by fiction regarded the inclusion, correction, computation or recomputation as rectification of a mistake apparent from the record and prescribed special termini for reckoning the period of four years within which the rectification must be made. Under Clause (5) the inclusion of the share in the assessment of the partners or the correction thereof was deemed to be a mistake apparent from the record within the meaning of the section, and Sub-section (1) applied thereto--the period of four years was to be computed from the date of the final order passed in the case of the firm. The disagreement or asunder disclosed as a result of assessment or reassessment of a firm between the share of a partner included in the individual assessment of that partner and his share disclosed in the assessment of the firm was not an error apparent from the record within the meaning of Section 35(1) and the legislature enacted a fiction making the inclusion of the share in the assessment or correction

thereof as such a mistake. It was held by the Supreme Court as under [1962.] 44 ITR 809, 813 :

' If the inclusion of the share or the correction of the assessment were an error apparent from the record and falling under Clause (1) of Section 35, the enactment of Clause (5) was plainly unnecessary. When the legislature has deliberately enacted a fiction, of the nature set out in Clause (5), we are unable to agree with the contention raised by counsel for the revenue that the enactment of the fiction was ex abundanti cautela. Rectification of the nature contemplated by Clause (5) could not have been effected under Clause (1), and to remove the lacuna the legislature declared mat what was not a mistake should for the purpose of rectification of assessment be regarded as a mistake apparent from the record and provided a terminus for the computation of the period of four years.'

30. The real question that fell for their Lordships' consideration was ' whether relying upon Clause (5) of Section 35 an Income-tax Officer may rectify the assessment of a firm or person who is a partner of a firm when the assessment of the firm is completed before the 1st of April, 1952 '. (Emphasis * added).

31. It is apparent that the question before the Supreme Court was whether independently of the pre-existing power of rectification the authority in exercise of the newly added power of rectification conferred by Clause (5) of Section 35 could rectify the assessment of a person completed before April 1, 1952. Their Lordships held that the newly added Clause (5) gave a partial retrospective operation; it conferred an additional power of rectification upon the ITOs; the provision was not procedural in character ; it affected the vested right of the assessees and in the absence of compelling reasons the court would not be justified in giving greater retrospectivity to the provision than was warranted by the plain words used by the legislature. It has been held that the orders of assessment are, subject to the provisions relating to appeals, revisions, reassessments and rectification, final ; the provisions relating to assessment and rectification or reopening thereof are exhaustive and cannot be extended by analogies. It was held in Habibullah's case : [1962]44ITR809(SC) :

'Before April I, 1952, rectification of assessment of an individual on the disclosure of errors consequent upon assessment of the firm of which he is a partner was not for reasons already stated permissible under Clause (1) of Section 35. This power was conferred for the first time by Clause (5) as from April 1, 1952, and by the express words of the clause arose from the assessment of the firm...... Section 35(5) does not purport to amend Clause (1) ; that clause is left untouched by the amending statute. Its applicafion, by fiction, is extended to other classes of cases by declaring what in truth are

not mistakes, as mistakes. Clause (5), therefore, confers an additional power of rectification upon the income-tax authorities and in the absence of compelling reasons we will not be justified in upholding the exercise of the power to assessments of firms which have been completed before the date on which the power was invested.' (Emphasis * added).

32. Thereafter, their Lordships considered Sub-clause (6) wherein the fiction applied whether the assessment was completed before or after the Amendment Act and held that when the legislature under Clause (6) of Section 35 expressly authorised rectification in the circumstances mentioned therein even if the assessment had been completed before the Amendment Act and it made no such provision in Clause (5), therefore, it would be reasonable to infer that the legislature did not intend to grant to the revenue authorities a power to rectify assessments falling within Clause (5) where the firm's assessment was completed before April 1, 1952. It was held that Clause (5) of Section 35 which was enacted by the Amendment Act was not declaratory of pre-exising law and it clearly affected the vested right which had accrued to the assessee and must be deemed to have come into force from April 1, 1952, and the clause had no retrospective effect than was expressly granted to it. The power to rectify assessment of a partner consequent upon the assessment of the firm could, therefore, be exercised only in case of assessment of the firm made on or after April 1, 1952. The ITO had no jurisdiction under Section 35(5) of the Act to rectify the assessment of a partner of a firm consequent upon the assessment or reassessment of the firm disclosing an error made before April 1, 1952.

33. In the instant case, Section 271(1)(a)(i) was amended with retrospective effect as if it had been in the statute book from the inception of the Act of 1961 and no terminus quo other than the above is set out in the Amendment Act. Secondly, the power of rectification sought for was not on the basis of retrospective amendment made by Section 13 of the Amendment Act but read with Section 254(2) of the I.T. Act and, as such, as held by the Supreme Court in Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. : [1958]34ITR143(SC) ' the principle of the finality of the orders or the sanctity of the existing rights cannot be effectively invoked by the respondent in the present case ' are directly applicable in the instant case. The just quoted principles of the Supreme Court have not been affected by any subsequent decisions.

34. In Habibullah : [1962]44ITR809(SC) the firm's assessments had been completed long before April 1, 1952, and the question before the Supreme Court was whether relying upon Clause (5) of Section 35 an ITO could rectify the assessment of a person who was a partner in a firm when the assessment of the firm had been completed before April 1, 1952. Therefore, the power con-

ferred by the legislature was held to be of partial retrospective operation empowering the authority to rectify only in the cases of assessment of a firm made on or after April 1, 1952. Habibullah's case : [1962]44ITR809(SC) came up for consideration in ITO v. T. S. Devinatha Nadar : [1968]68ITR252(SC) wherein, inter alia, it has been held : (1) that on a plain reading of Section 35(5) of the Indian I. T. Act, 1922, it was clear that the subject-matter of rectification was the completed assessment of a partner in a firm and the section nowhere shows that such completed assessment must take place after the provisions of Section 35(5) were brought on the statute book. (vide pp. 257-258). (2) What authorised the authority to exercise powers of rectification was the finding on the assessment or reassessment of the firm and the finding must be made after the section came into force and the finding was to be given effect to or made operative even on the completed assessment of a partner. (3) Referring to Habibullah's case : [1962]44ITR809(SC) on pages 258-259, it has been held that the power of rectification of the assessment of a partner consequent upon the assessment of the firm of which he was a partner could be exercised only in the case of the assessment of a firm made on or after April 1, 1952, from which date the retrospective operation of the amending Act started.

35. In our opinion, Habibullah's case : [1962]44ITR809(SC) stands on a different footing altogether and has nothing to do with the principles of law enunciated by the Supreme Court in Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. : [1958]34ITR143(SC) . In none of the cases referred to in J. M. Shah : [1974]94ITR519(Bom) the principles of law enunciated in Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. : [1958]34ITR143(SC) was dissented from. In Habibullah's case : [1962]44ITR809(SC) and the other cases dealing with Section 35(5) the question was as to the extent of the retrospectivity of Clause (5) of Section 35 when the authority exercised their power on the basis of the newly introduced Section 35(5), namely, as to whether it had power to reopen or rectify closed assessment prior to April 1, 1952. But the ratio decidendi of Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. : [1958]34ITR143(SC) is that the power of rectification exercised under the old Section 35 can be made with impunity in the light of retrospective amendment in another section. It was held in Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. that the principle of finality of the orders or the sanctity of the existing rights as to the closed assessment cannot be effectively invoked if rectification is made within four years as enjoined under the old Act on the basis of a retrospective amendment made in another section. In the event when the revenue authorities exercise power of rectification under the provision of the principal Act coupled with the Amendment Act the principle of finality of the orders or the sanctity of the existing rights can never arise.

36. The ratio decidendi of Habibullah's, case : [1962]44ITR809(SC) is that though the ITO was within the time limit prescribed by new Sub-section (5) of Section 35, i.e., four years from the date of the assessment order passed, the power of rectification conferred by Sub-section (5), which was deemed to have come into force on April 1, 1952, does not authorise or confer jurisdiction on the ITO to rectify assessment orders passed against a partner of the firm consequent upon the assessment of the firm made prior to April 1, 1952, Nowhere in Habibullah's case : [1962]44ITR809(SC) , it has been held that the assessment of the partners completed prior to April 1, 1952, could not be rectified. It can at best be said that in Habibullah's case, it has been held that power to rectify as was conferred on and from April 1, 1952, could not be made use of to affect the partners of a firm, the assessment of which had already been completed by that date. A line of distinction was sought to be made in J. M. Shah's case : [1974]94ITR519(Bom) that in Habibullah's case : [1962]44ITR809(SC) , it was held that the assessment orders were, subject to the provisions relating to appeals, revisions, reassessment and rectification, final. But the same view was not taken in Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. : [1958]34ITR143(SC) . However, it would not be correct to say that there was any divergence of views in Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co-Ltd. on the point. The question as to the finality of the order passed by the ITO could not be impaired by the retrospective operation of the relevant provision came up for their Lordships' consideration in Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. Their Lordships observed that the orders passed by the ITO could not be said to be final in the literal sense of the word as ' the order was and continued to be liable to be modified under Section 35 of the Act ', As such the conclusion in J. M. Shah's case : [1974]94ITR519(Bom) , 533 (Bom) that ' there is, therefore, a clear divergence of views on a point which arose in these cases ' (Habibullah's case : [1962]44ITR809(SC) and Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. : [1958]34ITR143(SC) ), is difficult to accept.

37. In the result, we are constrained to hold that the Tribunal had jurisdiction to exercise its power of rectification under Section 254(2) of the I.T. Act, 1961, read with the newly added Section 271(1)(a)(i) of the Act.

38. As such the answer to the question referred is that the Tribunal was not legally correct in refusing to rectify its order dated May 30, 1974, in LT.A. No, 709 (Gau) of 1972-73 and the order dated May 31, 1974, in I.T.A. No. 710 (Gau) of 1972-73, having regard to the provisions of Section 13 of the Direct Taxes (Amend.) Act, 1974, on the ground that it was a debatable point and so no rectification order could be passed under Section 254(2) of the I.T. Act, 1961, relating to the assessment in question.

39. Before parting we put on record the reason for delay in pronouncing the judgment. The matter was last heard on March 16, 1979. We had no time to deliver judgment forthwith ; one of us (Lahiri J.) was out on and from March 16, 1979, ' until further orders ' to hold circuit court at Agar-tala. The judgment was prepared, kept ready and delivered today immediately on return of Lahiri J. from Agartala on Saturday (A.N.), the 30th June, 1979.

N.I. Singh, J.

40. I agree.


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