1. This case has been referred to the Full Bench under the following circumstances: This case first came up before a Division Bench consisting two of us (Chief Justice and Chennakesav Reddy, J.): but, in view of the fact that there was some conflict between the decision of a Division Bench of this Court consisting of Sambasiva Rao, Acting Chief Justice and Muktadar, J., in R. C. No. 36 of 1974 decision of the Full Bench of this High Court in Allied Exports and Imports v. State of Andhra Pradesh, 28 STC 175 : 1971 Tax LR 750 AP regarding the principles of law applicable when an amendment has been made in a statute regarding the period of limitation and the period of limitation has been extended as compared to the previous period of limitation and such amendment has come into force at a date when, under the law as it stood prior to the amendment, the particular action on the part of the authorities concerned was not barred by the pre-existing law, the period of limitation to be applied is according to the pre-amendment law or the post-amendment law. Since this was an important question which often arises, and in view of the conflicting principles invoked by the Full Bench on the one hand and by the Division Bench on the other, it was felt desirable that the conflict, which apparently existed between the two decisions, should be resolved one way or the other.
2. The facts leading to this reference, so far as they are necessary for the purpose of this judgment are as follows:-
The assessment years under consideration are assessment years 1965-66 to 1968-69. The assessee is a registered firm. The assessment for all the years under reference was completed on February 25, 1970. On that very date, the Income Tax Officer issued a show-cause notice for levying penalty under Section 271(1)(a) of the Income Tax Act, 1961, because the returns for the respective years were filed much later than the due dates for filing the returns for the respective years as contemplated by Section 139(1). In respect of the assessment year 1965-66, the assessee did not file any explanation, but for the assessment years 1966-67 and 1967-68, the assessee stated that he had applied for extension of time till 30th December, 1966 and 31st December, 1967 respectively. For the assessment year 1968-69, the assessee replied that, since a return was filed under Section 139(4), penalty could not be levied. It was also contended that, since interest under Section 139(1) was charged, penalty could not be levied. The Income Tax Officer held that there was no reasonable cause for the delay in filing the returns and imposed penalties for the four assessment years by his order dated March 25, 1972. When the matter was carried in Appeal, the Appellate Assistant Commissioner, by a common order, dismissed the appeals and upheld the orders of penalty.
3. On further appeal by the assessee to the Income Tax Appellate Tribunal, it was contended that the orders of penalty passed by the Income Tax Officer were invalid, inasmuch as they were passed after the expiry of two years of the initiation of the penalty proceedings. The argument was based on the language of Section 275 of the Income Tax Act prior to its amendment by the Taxation Laws (Amendment) Act, 1970, which came into force on April 1, 1971. After the amendment, the time-limit of two years was to commence from the expiry of the financial year in which the proceedings for penalty were initiated. The Tribunal, relying on its earlier decision in I. T. A. No. 703(Hyd)/1972-73 dated December 21, 1972, held that the amendment brought about by the Taxation Laws (Amendment) Act, 1970 would not govern the assessment years under consideration, as the amendment was effective from April 1, 1971 only. Thereafter, at the instance of the Revenue, the following question was referred by the Tribunal for the opinion of this Court:
'Whether on the facts and in the circumstances of the case, the orders imposing penalties by the Income Tax Officer on 25-3-1972 are within the time allowed by law.'
In order to appreciate the point arising for consideration in this case, which is only as regards the period of limitation, it is necessary to refer to Section 275 of the Act, as it stood prior to its amendment by the Taxation Laws (Amendment) Act, 1970. The original Section, in so far as it is relevant for the purpose of this judgment, read :
'No order imposing penalty under this Chapter shall be passed after the expiration of two years from the date of the completion of the proceedings in the course of which the proceedings for the imposing of penalty have been commenced.'
Section 271 is one of the Section in Chapter XXI in which Section 275 is included. Under Clause (b) of Section 275, after its amendment by Taxation Laws (Amendment) Act, 1970, which was brought into effect on April 1, 1971, no order imposing a penalty under this Chapter shall be passed in any other case, after the expiration of two years from the end of the financial years in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. It is common ground that the case of the assessee would fall within Clause (b) and not within Clause (a) is Section 275 as it stands after its amendment.
4. It is clear, therefore, that, if the preamendment law is to be applied, the order of penalty should have been passed before February 25, 1972, inasmuch as the penalty proceedings have been initiated on February 25, 1970. They were required to be completed under the unamended Section 275 within two years from that date. If, on the other hand, the period of limitation under Section 275(b) as it stands after its amendment by the Taxation Laws (Amendment) Act, 1970, is to be applied, the period of limitation would expire on March, 31, 1972, that being end of two years from the end of the financial year 1969-70 in the course of which the proceedings for penalty were initiated viz., on February 25, 1970. It is clear, therefore, that, if the unamended law is to be applied, the order of penalty passed on March 25, 1972 would be barred by limitation and would be invalid; whereas, if the amended law is to be applied, the order imposing penalty would be within time, since the period of limitation would, under the amended law, expire on March 31, 1972. A clear distinction has been made in our jurisprudence between substantive law and procedural law. In Colonial Sugar Refining Company v. Irving (1905) AC 369, their Lordships of the Privy Council, on appeal from Australia, observed as follows :-
'As regards the general principles applicable to the case there was no controversy. On the one hand, it was not disputed that if the matter in question be a matter of procedure only, the petition is well founded. On the other hand, if it be more than a matter of procedure, if it touches a right in existence at the passing of the Act, it was conceded that, in accordance with a long line of authorities extending from the time of Lord Coke to the present day, the appellants would be entitled to succeed. The Judiciary Act is not retrospective by express enactment or by necessary intendment. And therefore the only question is, was the appeal to His majesty in Council a right vested in the appellants at the date of the passing of the Act, or was it a mere matter of procedure? It seems to their Lordships that the question does not admit of doubt. To deprive a suitor in a pending action of an appeal to a superior Tribunal which belonged to him as of right is a very different thing from regulating procedure. In principle, their Lordships see no difference between abolishing an appeal altogether and transferring the appeal to a new Tribunal. In either case there is an interference with existing rights contrary to the well-known general principle that statutes are not to be held to act retrospectively unless a clear intention to that effect is manifested.'
This decision of the Privy Council has been followed in numerous subsequent cases both in India and in England and the Supreme Court has also accepted the same principle. The sole question that has to be considered in cases like the present one is whether the amendment is as regards procedural or substantive law.
5. As is often said, nobody has a vested right or a substantive right in procedure and limitation has to be considered a part of the procedural law as distinct from substantive law.
6. In Prashar v. Vasantsen Dwarkadas : 49ITR1(SC) , the question of limitation came up before the Supreme Court. At page 55 (of ITR) : (at p. 1386 of AIR). Hidayatullah, J., (as he then was) has pointed out :
'On the expiry of the period, the assessment, if any, may also become final and conclusive but only so long as the law is not altered retrospectively. Under the scheme of the Income Tax Act a liability to pay tax is incurred when according to the Finance Act in force the amount of income, profits or gains is above the exempted limit. That liability to the State is independent of any consideration of time and, in the absence of any provision restricting action by a time-limit, it can be enforced at any time. What the law does is to prevent harassment of assesses to the end of time by prescribing a limit of time for its own officers to take action. This limit of time is binding upon the officers, but the liability under the charging Section can only be said to be unenforceable after the expiry of the period under the law as it stands. In other words, though the liability to pay tax remains, it cannot be enforced by the officers administering the tax laws. If the disability is removed or according to a new law a new time-limit is created retrospectively, there is no reason why the liability should not be treated as still enforceable. The law does not deal with concluded claims or their revival but with the enforcement of a liability to the State which though existing remained to be enforced.'
It is true that, in Prashar's case : 49ITR1(SC) , the Supreme Court was dealing with a case of assessment as distinct from a case of penalty. But the principle that the periods of limitation have been prescribed for the protection of citizens to prevent harassment, would apply both to the orders of assessment and the orders levying penalty. As Hidayatullah, J. (as he then was) pointed out, the liability for penalty would remain, but no proceedings could be taken against the assessee concerned after the period of limitation expired. If, before the period of limitation expired, by a statute the period of limitation is extended, then according to the observations of the Supreme Court, it would be competent to the officer to pass the order of penalty.
7. In Allied Exports and Imports v. State of Andhra Pradesh 28 STC 175 : 1971 Tax LR 750 a Full Bench of this Court consisting of Kumarayya, C. J., Gopal Rao Ekbote and Sambasiva Rao, JJ., was concerned with the question of penalty in connection with the orders of assessment under the Madras General Sales Tax Act, 1939 which was in force during the relevant assessment year 1956-57. The facts of the case were that the petitioner-firm was assessed to sales-tax for the year 1956-57 by an assessment order dated 30th Sep. 1958. Subsequently, the assessing authority issued on 24th February, 1961, a notice or reassessment and assessed the petitioner on an additional turnover as escaped turnover by its over dated 31st March, 1963. During the assessment year 1956-57, it was the Madras General Sales Tax Act, 1939 that was in force and under R. 17 of the Madras General Sales Tax Rules, 1939, the assessing authority could have reopened the assessment only within three years next succeeding the assessment year. On June 15, 1957, the Andhra Pradesh General Sales Tax Act. 1957 came into force and it repealed the Madras Act. According to Section 14(4) of the new Act, a period of four years was specified for reopening the assessment. Section 14(4) was also amended with retrospective effect from 15th June, 1957, and the amended provision provided a period of six years for reassessment in the case of default on the part of the dealer. The petitioner contended that Section 14(4-A) of the Andhra Pradesh General Sales Tax Act did not apply to the case and that, as the assessment year 1956-57, ended before the Andhra Pradesh Act, 1957 came into force, it was the Madras Act of 1939 which was applicable and consequently the notice of reassessment issued on 24th February, 1961, and the order of reassessment dated 31st March, 1963, were barred by time under R. 17. On these facts, the Full Bench held that, since the period prescribed for the exercise of the power to reassess under R. 17 of the Rules made under the repealed Act had not expired on the date when the repealing Act came into force, and since the right to tax and liability to pay were subsisting and were saved, and as Section 14(4-A) enlarged the period of limitation, it was the new Act, i.e., Section 14(4-A) that would apply to the case and that the assessing authority was, therefore, well within its jurisdiction in initiating and concluding the proceedings for reassessment within the time prescribed by Section 14(4-A). It may be pointed out that one of the cases the Full Bench referred to and relied upon was the decision of the Supreme Court in Prashar v. Vasantsen Dwarkadas, : 49ITR1(SC) . At p. 183 (of STC) : (at p. 753 of Tax LR) of the report, Gopal Rao Ekbote, J., (as he then was) delivering the judgment of the Full Bench, observed:
'It is necessary in order to determine this controversy to bear in mind the distinction between a substantive right and a rule of procedure prescribed for the enforcement of such a right. It is not possible to state with precision the exact nature of the distinction between a substantive law and the law of procedure. Still the distinction is marked and well-known. The law of procedure may be said to be that branch of the law which governs the process of litigation. It is the law of actions: all the residue is substantive law and relates not to the process of litigation, but to its purposes and subject-matter. In other words, the substantive law defines the remedy and the right, while the law of procedure defines the modes and conditions of application of the one to the other.
Likewise, the distinction between a right to remedy and a mere procedure to be followed in prosecuting that remedy must also be kept in view. The law of procedure deals with the process by which a remedy for the enforcement of a right is prosecuted. A right of suit and a right of appeal are remedies for the enforcement of a right and these remedies are equally substantive rights though remedial in nature. The law, it must be understood, makes a clear distinction between rules of law which in any way impair or destroy those rights and those which a litigant has to comply with for availing himself of those remedial rights. The latter belong to the law of procedure. While the former can be taken away or affected by an express provision of law or by a law which has that necessary implication, the latter relating to the procedure can be altered without detriment to the substantive rights or remedies. In cases where rights substantive or remedial are touched the presumption is that the Legislature does not intend to take away or affect such rights retrospectively unless as stated earlier the intention of the Legislature is made explicit in that behalf. However, in regard to the procedural law, the general presumption is that the alteration in the procedure is retrospective in the sense that it not only applies to pending cases but also applies to causes of action which had arisen before the change in the procedure was effected. But there is an exception to this general rule. In cases where the alteration in procedure would have the effect of destroying the right of action, the procedural law also is presumed to be prospective and not retrospective.'
At p. 184 of the report, Gopal Rao Ekbote, J (as he then was) cited the following passage from Maxwell on Interpretation of Statutes:
'No person has a vested right, in any course of procedure. He has only a right of prosecution or defence in the manner prescribed for the time being, by or for the Court in which he sues, and if an Act of Parliament alters that mode of procedure he has no other right than to proceed according to the altered mode. The remedy does not alter the contract or the tort; it takes away no vested right, for the defaulter can have no vested right in a state of the law which left the injured party without or with only a defective remedy. If the time for pleading is shortened or new powers of amending were given it would not be open to the parties to gainsay such a change, the only right thus interfered with being that of delaying or defeating justice, a right little worthy of respect.'
Gopal Rao Ekbote, J., (as he then was) cited the following passage from the decision of Hidayatulla, J. (as he then was) in Prashar Hidayatulla, J. (as he then was) in Prashar v. Vasantsen Dwarkadas : 49ITR1(SC) .
'Before dealing with this question we wish to say a few words about the well-known principle that subsequent changes in the period of limitation do not take away an immunity which has been reached under the law as it was previously. In this sense statutes of limitation have be picturesquely described as 'statutes of repose'. We were referred to many cases in which this general principle has been firmly established. We do not refer to these cases because in opinion it is somewhat inapt to describe Sec. 34 with its many amendments and validating sections as a 'Section of repose'. Under that Section there is no repose till the tax is paid or the tax cannot be collected. What the law does by prescribing certain period of time for action is to create a bar against its own officers administering the law. It tries to trim between recovery of tax and the possibility of harassment to an innocent person and fixes a duration for action from these two points of views. These periods are occasionally readjusted to cover some cases which would otherwise be left out and hence these amendments. An assessment can be said to become final and conclusive if no action can touch it but where the language of the statute clearly reopens closed transactions there can be no finality. We would not raise these prescribed periods to the level of those periods of limitation which confer not only immunity but also give titles by the passage of time.'
In the light of these observations and the principles culled out from the various other decisions considered by the Full Bench it was ultimately held that, since the period prescribed for the exercise of the power to reassess under R. 17 of the Rules made under the repealed Act had not expired on the date when the repealing Act came into force, and since the right to tax and liability to pay were subsisting and were saved, and as D. 14 (4-A) enlarged the period of limitation, it was the new Act, i.e., S. 14 (4-A) that would apply to the case. It is clear, in view of the exhaustive consideration on this aspect of the case that the decision of the Full Bench of this Court in Allied Exports and Imports v. State of Andhra Pradesh, 28 STC 175: 1971 Tax LR 750 with which we are in respectful agreement, clearly lays down the principles applicable to all such cases. However, when the division Bench consisting of Sambasiva Rao, Acting Chief Justice and Muktadar , J., decided R.C. No. 36 of 74, by their judgment of December 26, 1975, their attention was not drawn to the decision of the Full Bench in Allied Exports and Imports v. State of Andhra Pradesh , 28 STC 175 : 1971 Tax LR 750. In that case also it was question of penalty proceedings and following certain observations of the Supreme Court in J.P. Jani I.T.O. v. Induprasad Devashankar Bhatt : 72ITR595(SC) , the Division Bench held that the Income-tax Officer could not issue the order of penalty, the Division Bench observed:
'One aspect that is to be noted in this ease is that S. 275 as amended does not give any retrospective effect nor any such retrospective operation can be deduced by implication. But as contended by Mr. Rama Rao, if during the continuation of the period a law is passed enlarging the period, then the period would be enlarged according to the amended law. Generally speaking this aspect of the law is well settled and in conformity with what is submitted by the learned advocate for the Revenue. But it is to be noted that the Income Tax Act is a special Act and there are principles which specifically regulate the proceedings under the Income Tax Act. Therefore the special principles applicable to the Income Tax Act would override the general principles.'
With respect we are unable to agree with this reasoning of the learned Judges of the Division Bench. It was unfortunate that the decision of the Full Bench in Allied Exports and Imports v. State of Andhra Pradesh, 28 STC 175 : 1971 Tax LR 750 was not brought to the notice of the Division Bench. We are sure that, if the attention of the learned Judges of the Division Bench was drawn to the decision of the Full Bench, they would have taken the same view as we take in the instant case viz., that the period of limitation as provided for by the amended section would apply. The Division Bench, in R.C. No. 36 of 1974, applied the principle laid down by the Supreme Court in Karimtharuvi Tea Estate Ltd. v. State of Kerala, : 60ITR262(SC) , that 'it is well settled that the Income tax Act as it stands amended on the 1st day of April of any financial year, must apply to the assessments of that year. Any amendments in the Act which come into force after the first day of April of a financial year would not apply to the assessment of that year, even if the assessment is actually made after the amendments came into force'. It is true that this principle regarding the law is to be applicable to the assessments has been laid down. With great respect to the learned Judges of the Division Bench the principle, which is applied to the period of limitation prescribed for imposition of penalties or for reopening assessments, would be governed by the observations of Hidayatullah ,J. (as he the was) in Prashar v. Vasantsen Dwarkadas, : 49ITR1(SC) . Under these circumstances with great respect, we differ from the view taken by the learned judges of the Division Bench.
8. It may be pointed out that the same view as the one which we are taking was taken by the Division Bench of the Gujarat High Court in Income Tax Reference No. 28 of 1974 decided on September 1, 1975* The Division Bench of which one of us (Chief Justice) was a member, observed:
'It is well settled law that as regards matters of procedure the legislature can make changes and those changes would apply so far as limitation is concerned to pending proceedings unless vested right has accrued to any party by reason of the old period of limitation having expired.'
In that particular case, on the date when the new section came into force with effect from April 1, 1971, even under the old unamended section, the time for passing the order of penalty had not expired and , therefore by the well recognised principle of interpretation, the period of limitation was held to have been enhanced or enlarged up to March 31, 1972, as provided for in the amended S. 275. The Division Bench further observed :
'As least so far as the question of limitation is concerned, it is obvious that the old section cannot apply after the Amendment Act since the entire old section was substituted by the new Section and what we are concerned with in the present case is the application of the well settled rule of law that limitation would always apply to pending proceedings as well'.
We agree with these observations of the Division Bench of the Gujarat High Court. It may be pointed out that, in Commr. of Income Tax, Orissa v. Bhikari Charan Panda, : 104ITR73(Orissa) a Division Bench of the Orissa High Court has also come to the same conclusion. The facts of the case before the Orissa High Court were that the assessment order was passed on December 31, 1970 and the penalty proceedings were initiated on the same day. The order of penalty came to be passed on February 20, 1973. If the unamended provisions of S. 275 were to be applied, the order of penalty would be barred by limitation since it was passed two years after the date on which the proceedings for penalty were initiated. But on the other hand, if the amended Section were to be applied, then the order of penalty would be within time because it was passed before March 31, 1973 that being the end of the financial year 1970-71 in the course of which the proceedings for penalty were initiated. On these facts the Orissa High Court held that, when the amending Act came into force, the two year period provided under the unamended S. 275 had not expired. At the stage when the new provision with effect from April 1, 1971, introduced a new scheme of limitation, no right had accrued to the assessee. Therefore, the law as in force on the date when the order was made must be applicable.
9. With respect, we are in agreement with the observation of the learned Judges of the Division Bench of the Orissa High Court. Under these circumstances it must be held that the view taken by the Division Bench in R.C.No. 36 of 1974 was not correct and that view must be held to be overruled by this decision of ours.
10. In the light of the above discussion, we answer the question referred to this Court for its opinion, in the affirmative i.e, in favour of the Revenue and against the assessee. It is clear from the order of the Tribunal in the instant case that the Tribunal dealt only with the question of limitation and has not dealt with the merits of the order levying penalty. The matter will now go back to the Tribunal, so that the Tribunal will deal with the merits of the case and we are not expressing any opinion whatsoever on the merits of the order levying penalty viz., whether there was reasonable cause for the delay in filing the returns or not and whether the quantum of penalty was proper or not or any other question on merits.
11. The question is, therefore, answered accordingly. No order as to costs. Advocate's fee Rs. 250/-
12. Reference answered in favour of revenue.