1. In consequence of information in his possession that the assessee actually paid Rs. 38,000 for the purchase of two vehicles as against Rs. 25,000 shown by him, the Income-tax Officer, after due service of notices on the assessee, reopened the assessment for 1959-60, under Section 147 of the Income-tax Act, 1961, and revised the assessment by addingRs. 13,000 to the income assessed originally, as he was satisfied that the assessee had not satisfactorily explained the source of the unexplained investment. The legality of the addition of Rs. 13,000 made in the reassessment was challenged before the Appellate Assistant Commissioner in first appeal. The Appellate Assistant Commissioner deleted the addition after giving the following finding and directions :
' .... Thus, the unexplained investment was during the accounting years 1956-57 and 1957-58. The relevant assessment years for which the sum should be brought to tax are 1957-58 and 1958-59. The addition made in the assessment year under appeal towards the unexplained investment amounting to Rs. 13,000 cannot, therefore, be sustained. I accordingly delete it and direct the Income-tax Officer to assess the unexplained investment for the above-mentioned assessment years...'
2. In consequence of the finding and to give effect to the direction contained in the order passed by the Appellate Assistant Commissioner in the appeal relating to the assessment year 1959-60, the Income-tax Officer issued notices dated June 20, 1969, to the assessee, to show cause why the assessments under Section 147 of the Income-tax Act, 1961, for the assessment years 1957-58 and 1958-59 should not be reopened and unexplained investment in the respective accounting years added ?
3. According to the assessee, the notices dated 20th March, 1969, issued by the Income-tax Officer for reopening the assessments for 1957-58 and .1958-59 were time-barred and hence bad in law.
4. The assessee, therefore, moved this court by this writ application filed under Article 226 of the Constitution of India, seeking the issue of a writ of prohibition against the Income-tax Officer forbearing him from proceeding further in pursuance of those impugned notices.
5. Meanwhile, the reassessments were completed; the assessee then applied to this court for permission to modify the prayer. Permission was granted. The prayer was accordingly amended. By the amended prayer, the assessee seeks the issuance of a writ of certiorari for quashing the reassessments for 1957-58 and 1958-59.
6. The learned counsel, Shri S. Dasaratharama Reddy, appearing for the assessee, contended that: (1) the impugned notices dated March 20, 1969, for reopening the assessments for 1957-58 and 1958-59 are time-barred and bad in law; (2) as held by the Supreme Court in Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das : 52ITR335(SC) the finding and direction given by the Appellate Assistant Commissioner in the appeal relating to the assessment year 1959-60 to reassess the unexplained investment in the assessment years 1957-58 and 1958-59 are without jurisdiction and void; (3) Explanation (2) to Section 153(3) is not applicable to the facts of this case,and even assuming that it is applicable, then the Explanation is ultra vires of Section 251(1) of the Act and the Appellate Assistant Commissioner had no jurisdiction to give such a finding or direction on the basis of which the Income-tax Officer could reopen the assessments for different years; and (4) the impugned notices issued under Section 148 for reopening the assessments for 1957-58 and 1958-59 are bad in law, because prior sanction of the Commissioner of Income-tax was not obtained as required by Section 151 of the Act.
7. Sri P. Rama Rao, the learned counsel appearing for the income-tax department, contended that the finding and direction relating to the assessment years 1957-58 and 1958-59, given by the Appellate Assistant Commissioner in appeal proceedings before him for the assessment year 1959-60, is, no doubt, void in view of the decision of the Supreme Court in Income-tax Officer v. Murlidhar Bhagwan Das, : 52ITR335(SC) that the finding or direction should be ignored. The mere fact of exclusion by the Appellate Assistant Commissioner of the income of Rs. 13,000 from the assessment for 1959-60 gave jurisdiction to the Income-tax Officer for reopening and reassessing the income for different years, under Section 150(1) of the Act, read with Explanation (2) to Section 153(3) of the Act, at any time and without the prior sanction of the Commissioner of Income-tax. Hence, the impugned notices and reassessments are valid in law.
8. In reply, the learned counsel for the assessee submitted that when the finding or direction given by the Appellate Assistant Commissioner is, as held by the Supreme Court, invalid, the legislature cannot validate a finding declared to be invalid by the Supreme Court by adding an Explanation. The basis of infirmity pointed out by the Appellate Assistant Commissioner should have been removed by appropriately amending the powers of the Appellate Assistant Commissioner to hear an appeal under the Income-tax Act. The mere addition of an Explanation to ;section 153(3) of the Act, without amending Section 251(1), which gave power to the Appellate Assistant Commissioner for disposing of an appeal before him, would amount to usurping the judicial power which the legislature did not possess. The Explanation is, therefore, void.
9. The procedure for bringing to tax an income which escaped assessment is laid down in Sections 147 - 153 of the Income-tax Act, 1961. Income chargeable to tax may escape assessment for more than one reason. It may escape either, (1) by reason of omission or failure on the part of the assessee to file a return of income for any assessment year as required by Section 139 of the Act, or to disclose fully and truly all the material facts necessary for making the assessment for that year, or (2) for reasons not attributable to the assessee's omission or failure and the Income-tax Officer, in consequenceof information in his possession, has reason to believe that income chargeable to tax has escaped assessment. In either case, if the Income-tax Officer has reason to believe that income chargeable to tax for any year has escaped assessment, he may reopen the assessment under Section 147 of the Act.
10. But, before reopening the assessment, the Income-tax Officer has to comply with certain conditions. Those conditions are laid down in the Act in Sections 148 - 151 and 153. Under Section 148, the Income-tax Officer has to record his reasons for the issue of a notice for reopening an assessment, and then serve on the assessee a notice giving all the particulars which are to be included in a notice under Section 139 of the Act. The notice to be issued under Section 148 of the Act has to be issued within the time limits laid down in Section 149 of the Act. No notice under Section 148 can be issued to an assessee after the expiry of 8 years, 16 years or 4 years, from the last date of the assessment year in the respective circumstances stated in Section 149(a)(i) and (ii) and Section 149(b) of the Act. The provisions of Section 149(1) are subject to Section 151- Section 151 provides that no notice under Section 148 shall be issued after the expiry of 8 years or four years, as the case may be, from the end of the relevant assessment year, unless the Board in the former case and the Commissioner of Income-tax, in the latter case, is satisfied on the reasons recorded by the Income-tax Officer that it was a fit case for the issue of such notice.
11. Notwithstanding anything contained in Section 149(1), notice under Section 148 may be issued at any time for the purpose of making an assessment, reassessment, or recomputation of income in consequence of, or to give effect to a finding or direction contained in the order passed by an authority in any proceeding under the Act by way of appeal, reference or revision (Section 150, Clause (1)). Section 150, Clause (1) of the Act, will not apply to a case of such an assessment, reassessment or recomputation of income if it related to an assessment year in respect of which assessment, reassessment or recomputation of income if it related to an assessment year in respect of which assessment, reassessment or recomputation of income could not have been made at the time when the order which was the subject-matter of appeal, reference or revision, was made, by reason of the time-limits, fixed under Section 153(3) for making the assessments, reassessments, etc. (Section 150).
12. We are not here concerned with Section 152 of the Act. Section 153(3), which is by far the most important for the purpose of deciding the case before us, so far as it is relevant, is reproduced below :
' 153. (2) No order of assessment, reassessment or recomputation shall be made under Section 147--
(a) where the assessment, reassessment or recomputation is to be made under Clause (a) of that section, after the expiry of four years from the end of the assessment year in which the notice under Section 148 was served;
(b) where the assessment, reassessment or recomputation is to be made under Clause (b) of that section, after-
(i) the expiry of four years from the end of the assessment year in which the income was first assessable, or
(ii) the expiry of one year from the date of service of the notice under Section 148,
whichever is later.
(3) The provisions of Sub-sections (1) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may be completed at any time--...
(ii) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under Section 250, 254, 260, 262, 263 or 264, or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act...... Explanation 2.--Where, by an order referred to in Clause (ii) of subsection (3), any income is excluded from the total income of the assessee for an assessment year, then, an assessment of. such income for another assessment year shall, for the purposes of Section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order...... '
13. It was argued by the learned counsel for the assessee that Explanation 2 applies only to a case where no finding or direction has been given by an authority in a proceeding before it by way of appeal, revision or reference, in consequence of which the assessment or reassessment is made for a different assessment year. If a finding or direction has actually been given in an order by an authority and the assessment or reassessment is made in consequence thereof, or to give effect thereto, then there is no necessity to deem that the assessment or reassessment is made in consequence of a finding or direction given by an authority.
14. Explanation 2 to Sub-section (3) of Section 153 partially supersedes the Supreme Court decisions in Murlidhar Bhagwan Das's, : 52ITR335(SC) case and Sivalingam Chettiar's case, : 66ITR586(SC) by providing that in any case where income is excluded in appeal, reference or revision, or any other legal proceedings, from the assessment for any year, an assessment of such income for another assessment year shall be deemed to be one made in consequence of, or to give effect to, any finding or direction by the authority hearing the case. This fiction of law removes the bar of limitation irrespective of the question whether the authority has in fact given or can, in law, give a finding or direction that the income should be taxed in a specified assessment year other than the year for which the authority hears the case. The effect of Section 150 and this sub-section read with Explanation 2 is that, if any income is deleted from assessment in a higher proceeding on the ground that it is not the income of that year, steps may be taken under Section 147 to assess it as the income of another year, without any limitation applying to the issue of the notice under Section 148 or to the completion of the assessment or reassessment.
15. Explanation 2 operates to put all the assessees on the same footing inasmuch as, once an income is excluded from assessment for a particular year on the ground that it is not the income of that year, the bar of limitation is necessarily removed for assessment for another year, regardless of the question whether there is any express finding by the higher authority that the amount represents the income of another specified year. On the other hand, in the 1922 Act there was scope for discrimination, because the assessment of assessees in whose cases the appellate authority, for instance, gave a finding that the income was assessable for another year, could be reopened for such other year without the bar of limitation while the other assessees whose appeals were disposed of on the simple ground that the income was not assessable as the income of the year under appeals, without a finding as to the year in which the income was assessable, could plead the bar of limitation if an attempt was made to reopen their assessments for any other year.
16. Thus, on a careful reading of Explanation 2 to Sub-section (3) of Section 153, it is evident that the mere exclusion of an income from an assessment year by a higher authority in a proceeding before it, gives jurisdiction to the Income-tax Officer to assess or reassess that excluded income in a different assessment year, and, in such a case, under Explanation 2 to Section 153(3), it will be deemed to have been made in consequence of or to give effect to a finding or direction contained in the said order. If there is no finding or direction in the order of a higher authority, then Explanation 2 to Section 153(3) of the Act will apply. On the other hand, if there is a finding or direction, the case would fall under Section 153(3).
17. In a case dealing with the corresponding provisions of the Indian Income-tax Act of 1922, the Supreme Court in Income-tax Officer v. Murlidhar Bhagwan Das, : 52ITR335(SC) held that:
' The jurisdiction of the Appellate Assistant Commissioner under Section 31 was strictly confined to the assessment order of the particular year under appeal and that assessment or reassessment made in consequence of or to give effect to any finding or direction contained in an order under Sections 31, 33, 33A, 33B, 66 or Section 66A, must necessarily relate to the assessment of the year under appeal, revision or reference, as the case may be.'
18. The Explanation in the 1961 Act partly gets over the above decision of the Supreme Court.
19. Two arguments have been advanced by the learned counsel, Sri S. Dasaratharama Reddy, for contending that Explanation 2 is invalid. His argument was that in Income-tax Officer v. Murlidhar Bhagwan Das, : 52ITR335(SC) the Supreme Court pointed out the infirmity in giving a finding or direction relating to an assessment year which was different from the one under his consideration. Instead of removing that infirmity by amending Section 251(1) of the Act and by enlarging the powers of the Appellate Assistant Commissioner for disposing of an appeal before him, the Act has merely added the impugned Explanation to Section 153(3). By doing so, the legislature has usurped the judicial power which is not vested in it. The next argument was that the legislature has attempted to overrule the decision of the Supreme Court and to validate a finding which the Supreme Court has invalidated ; that the legislature cannot do, and if the legislature attempts to do that, the provision should be struck down. In support of these arguments, the learned counsel for the assessee invited our attention to Janapada Sabha, Chhindwara v. Central Provinces Syndicate Ltd., : 3SCR745 , State of Tamil Nadu v. M. Rayappa Gounder : AIR1971SC231 , Municipal Corporation of Ahmedabad v. New Shorrock Spinning and Weaving Company Ltd., : 1SCR288 and Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, : 79ITR136(SC) .
20. The first argument advanced by the learned counsel in this behalf has no substance. Mere exclusion of an income from one assessment by an appellate authority would empower the Income-tax Officer to reopen the assessment for a different year and Explanation 2 to Section 153(3) of the Act. Explanation 2 does not validate and finding or direction given by the Appellate Assistant Commissioner in appeal which is invalid. Consequently, the issue would not touch the powers of the Appellate Assistant Commissioner, as envisaged in Section 251(1) of the Act in disposing of an appeal before him. The Appellate Assistant Commissioner would be within his powers to exclude an income from an assessment if it did not pertain to that year. The Income-tax Officer then gets jurisdiction in such a case in view of the impugned Explanation to assess that income or reassess that income in another year, that is to say, it gives jurisdiction to the Income-tax Officer. The powers to hear an appeal given to theAppellate Assistant Commissioner under Section 251(1) of the Act do not, therefore, require to be enlarged, because the exclusion of the income from an assessment would be within his jurisdiction.
21. The next argument is equally devoid of force. In Janapada Sabha, Chhindwara v. Central Provinces Syndicate Ltd. : 3SCR745 the Supreme Court laid down that, on the language used in the Act, it was plain that the legislature attempted to overrule or set aside the decision of the Supreme Court, which it cannot do. As we have already stated above, the legislature in this case has not attempted to overrule or set aside the decision of the Supreme Court. This decision is not, therefore, attracted to the facts of the case before us.
22. In State of Tamil Nadu v. M. Rayappa Gounder : AIR1971SC231 the impugned provision was in the following terms :
' Notwithstanding anything contained in this Act or in the principal Act or in any judgment, decree or order of any court no assessment or reassessment or collection of any tax due on any payment for admission to any entertainment or any cinematograph exhibition which has escaped assessment to tax, or which has been assessed at a rate lower than the rate at which it is assessable, under Section 4 or 4-A of the principal Act, made at any time after the date of the commencement of the principal Act and before the date of the publication of this Act in the Fort St. George Gazette shall be deemed to be invalid or ever to have been invalid on the ground only that such assessment or reassessment or collection was not in accordance with law and such tax assessed or reassessed or collected or purporting to have been assessed or reassessed or collected, shall, for all purposes, be deemed to be and to have been always validly assessed or reassessed or collected......'
23. Dealing with such a provision, the learned judges of the Supreme Court observed that the Amending Act which contained the above provision was invalid in so far as it attempted to validate an invalid assessment, without removing the basis of its invalidity. As we have already stated above, Explanation 2 does not convert an invalid finding or direction into a valid finding or direction. Hence, the above decision does not help the assessee.
24. In Municipal Corporation of Ahmedabad v. New Shorrock Spinning & Weaving Company Ltd. : 1SCR288 the impugned section authorized the Corporation that, despite the fact that certain assessments have been set aside by courts, it shall be lawful for the Corporation to assess or reassess the premises, concerned in those decisions, to property tax for the concerned assessment years. Dealing with the validity of that provision, the Supreme Court observed that:
' Prima facie provision of Sub-section (3) introduced in Section 152-A by the Gujarat Amending and Validation Ordinance, 1969, appears to command the Corporation to refuse to refund the amount illegally collected despite the orders of the Supreme Court and the High Court. That provision attempts to make a direct inroad into the judicial powers of the State. The legislatures under our Constitution have, within the prescribed limits, powers to make laws prospectively as well as retrospectively. By exercise of those powers the legislature can remove the basis of a decision rendered by a competent court thereby rendering that decision ineffective-But no legislature in this country has power to ask the instrumentalities of the State to disobey or disregard the decisions given by courts.'
25. In the present case Explanation 2 does not ask the State to disobey or disregard the decision of the Supreme Court rendered in Income-tax Officer v. Murlidhar Bhagwan Das : 52ITR335(SC) .
26. In Prithvi Cotton Mitts Ltd. v. Broach Borough Municipality : 79ITR136(SC) the learned judges of the Supreme Court observed that the validity of a validating law depends upon whether the legislature possesses the competence which it claims over the subject-matter and whether in making the validation it removes the defect which the court had found in the existing law and makes adequate provision in the validating law for a valid imposition of the tax.
27. In the instant case before us, the department has, undoubtedly, power to tax the income of an assessee in the assessment year to which it relates.
28. If the impugned Explanation had directed the assessment of an amount which is not income of the assessment year which is sought to be reopened, then it could be said that the Explanation sought to validate an invalidated assessment. This is not the case here. We, therefore, find no substance in the arguments advanced by the learned counsel and, accordingly, reject them.
29. In view of the Explanation 2, since the income in question has been excluded from the assessment for 1959-60 by the Appellate Assistant Commissioner, the Income-tax Officer got jurisdiction to reopen the assessment of the relevant assessment years to bring to tax the income so deleted from the assessment for 1959-60. In such a case, the assessment under Section 147 comes directly within Explanation 2 to Section 153(3) and, therefore, the time limits prescribed for making the assessment or reassessment provided in Section 153(1) and (2) do not apply. Since the assessment or reassessment in this case comes within the purview of section150 of the Act, notices under Section 149(1) for the assessment years 1957-58 and 1958-59 could be issued at any time, notwithstanding anything contained in Section 149(1). Section 149(1) not only prescribes the time limits for the issue of notice under Section 148, but also says that such notices shall be subject to the provisions of Section 151 of the Act. Section 151 of the Act provides that no notice under Section 148 could be issued without the prior sanction of the Board or the Commissioner of Income-tax. When Section 149(1) itself is not applicable to an assessment or reassessment coming within the purview of Section 150 then both the conditions occurring in Section 149(1), i.e., the time limit for the issue of notices and (lit; prior sanction of the Hoard or the Commissioner of Income-tax do not apply to an assessment or reassessment made under Section 150. We, therefore, hold that the reassessments for the assessment years 1957-58 and 1958-59 have been validly made and the notices for making those reassessments were valid and validly issued. Since the reassessments are legal and valid, they cannot be quashed. The writ petition fails and is, accordingly, dismissed with costs. The assessee shall pay the costs of the department. Advocate's fee Rs. 100.