OAK J. - The question for consideration in this writ petition is the true scope of sub-section (6) of section 35, Income-tax Act (hereinafter referred to as the 'Act').
Deo Sharma is the petitioner. He had two separate sources of income. Firstly, he had income from his share in the firm, M/s. L. N. Gadodia & Company, Kanpur, to the extent of 0-4-0 in the rupee. Secondly, he received by way of renumeration one-fourth share in the net profits of a certain retail shop at Kanpur for managing that shop. Initially, income-tax was assessed on the footing that the petitioners one-fourth share in the net profits of the retail shop constituted income from business, and he was subjected to excess profits tax under the Excess Profits Tax Act, 1940. On that basis, an order was passed on February 22, 1947, assessing the petitioner to income-tax for three separate assessment years, 1944-45, 1945-46 and 1946-47. The petitioner contested his liability to pay excess profits tax. That matter was referred to this court under section 66(1) of the Act. That reference was answered by this court in favour of the petitioner. In view of that decision, that Income-tax Appellate Tribunal excluded that income from excess profits tax assessments for those years. As a consequence of that proceeding, the Income-tax Officer, Kanpur, passed three separate orders on May 18, 1956, for assessment of income-tax for those three years. The order dated dated May 18, 1956, resulted in enhancement of the income-tax. The petitioner filed an objection protesting against the alleged rectification of the assessment. That objection was rejected by the Income-tax Officer. An appeal filed by the petitioner was dismissed by the Appellate Assistant Commissioner. A revision filed by the petitioner was also dismissed by the Commissioner of Income-tax. This writ petition is directed against these orders of the Income-tax Officer, Kanpur, and the Income-tax Commissioner, Lucknow.
Respondent No. 1 took action in the matter under sub-section (6) of section 35 of the Act. Section 35(6) of the Act is in these terms :
'Where the excess profits tax or the business profits tax payable by an assessee has been modified in appeal, revision or any other proceeding, or where any excess profits tax or business profits tax has been assessed after the completion of the corresponding assessment for income-tax (whether before or after the commencement of the Indian Income-tax (Amendment) Act, 1953), and in consequence thereof it is necessary to recompute the total income of the assessee chargeable to income-tax, such recomputation 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 accordingly, the period of four years referred to in that sub-section being computed from the date of the order making or modifying the assessment of such excess profits tax or business profits tax.'
It was urged for the petitioner before the respondents and before this court that, considering that the initial assessment was done in the year 1947, the assessment could not be revised under sub-section (6) of section 35 of the Act. The dates bearing on this question are these. Initially, assessment of income-tax for three years was made on February 22, 1947. As a consequence of the other proceeding under the Excess Profits Tax Act, the Income-tax Appellate Tribunal passed an order on January 19, 1954, for refund of the excess profits tax. The impugned order was passed by respondent No. 1 on May 18, 1956. The question for consideration is whether it was possible to take action in the year 1956 with reference to an assessment of income-tax made in the year 1947.
Sub-section (5), (6) and (7) were inserted in section 35 of the Income-tax Act by the Indian Income-tax (Amendment) Act, 1953 (No. XXV of 1953). It was provided in the Amendment Act that the amendment would have effect from April 1, 1952. Mr. R. L. Gulati appearing for the petitioner contended that, considering that the amendment took effect from April 1, 1952, only, no action is permissible for revising an assessment made prior to that date.
The provision of sub-section (5) of section 35 is somewhat similar to the provision of sub-section (6) of Section 35. It will, therefore, be useful to refer to decisions under section 35(5) of the Act. In Income-tax Officer, V. Circle, Madras v. S. K. Habibullah it was held by their Lordships of the supreme court that an Income-tax Officer has no jurisdiction under clause (5) to rectify assessment of a partner consequent on the assessment of the firm, in cases where the firms assessment was completed before April 1, 1952.
Similarly, in Second Additional Income-tax Officer, Guntur v. Atmala Nagaraj, it was held that sub-section (5) of section 35, Income-tax Act, was not applicable to cases where the assessment of the partner was completed before April 1, 1952, even though assessment of the firm was completed after April 1, 1952.
Although decisions under sub-section (6) must be determined primarily on the language of sub-section (6) itself, it may be pointed out that sub-section (6) contains the important clause 'whether before or after the commencement of the Indian Income-tax (Amendment) Act, 1953'. That clause is not to be found in sub-section (5) of section 35.
In M. K. Venkatachalam, Income-tax Officer v. Bombay Dyeing and ., it was observed at page 149 that it may be conceded that in respect of other retrospective provisions of the Amendment Act such a power to revise the earlier orders cannot be claim or exercised by the Income-tax Officer.
Sub-section (6) of section 35 contemplates reassessment of income-tax on the discovery of a mistake in a subsidiary proceeding. That subsidiary proceeding may be one of two kinds. In the first kind of cases, excess profits tax or business profits tax payable by an assessee has been modified in appeal, revision or some other proceeding. In the second type of cases, excess profits tax or business profits tax has been assessed. The present case falls in the first group. The question for consideration is whether the expression 'whether before or after the commencement of the Indian Income-tax (Amendment) Act, 1953' governs the first group of cases. Mr. Gulati suggested that the expression governs the clause 'any excess profits tax or business profits tax has been assessed.' It, however, appears that the expression governs the clause which precedes it immediately, viz.. 'completion of the corresponding assessment for income-tax.' The subject-matter of sub-section (6) is reassessment of income-tax. The central point in the proceeding is the initial assessment for income-tax. It is made clear in sub-section (6) that action under this sub-section can be taken whether completion of assessment of income-tax was done before or after April 1, 1952. In Habibullahs case, it was observed on page 812 :
'Clause (6) dealt with recomputation of the total income of an assessee in consequence of modifications made in the excess profits tax or the business profits tax payable by an assessee subsequent to an assessment made under the Income-tax Act.'
That observation suggests that the expression within the brackets in sub-section (6) governs the first type of cases as well as the second type of cases mentioned in sub-section (6).
In Ahmedabad . v. S. G. Mehta, Income-tax Officer, it was held that sub-section (10) of section 35, Income-tax Act, applied even though dividend had been declared before April 1, 1956. It was further observed that the rule that an Act did not have retrospective operation on substantial rights which had become fixed before the date of the commencement of the Act was not unalterable. The legislature might affect substantial rights by enacting laws which were expressly retrospective or by using language which had that necessary result. And this language might give an enactment more retrospectivity than what the commencement clause gave to any of its provisions. When this happened the provisions thus made retrospective, expressly or by necessary intendment, would operate from a date earlier than the date of commencement and would affect rights which, but for such operation, would have continued undisturbed.
In Habibullahs case, the court had to find out the scope of sub-section (5) of section 35. It was found convenient to compare the provision of sub-section (5) with the provision of sub-section (6). It was observed on pages 814 and 815 :
'Manifestly, by the express provisions contained in clause (6) the fiction applies whether the assessment is completed before or after the commencement of the Indian Income-tax (Amendment) Act, 1953. Even though clause (6) is also made retrospectively operative as from April 1, 1952, the legislature has authorised the revenue authorities after April 1, 1952, to pass an order recomputing the total income of the assessee whether or not the assessment was completed before the commencement of the Indian Income-tax (Amendment) Act, 1953....the legislature under clause (6) of section 35 expressly authorised rectification in the circumstances mentioned therein even if the assessment has been completed before the Indian Income-tax (Amendment) Act, 1953, and it made no such provision in clause (5).....'
It is true that in Habibullahs case the court was primarily concerned with the scope of sub-section (5). But the observations made by the court in that case as regards the interpretation of sub-section (6) are entitled to great respect.
As already pointed out, it is made clear in sub-section (6) itself that action is permissible whether assessment of income-tax was completed before or after April 1, 1952. On the language of sub-section (6), and relying on the observation the observations of the Supreme Court in Habibullahs case, we conclude that it is open to the income-tax authorities to take action under section 35(6), Income-tax Act, even in a case where assessment of income-tax had been completed before April 1, 1952. The respondents were right in overruling the objection raised by the petitioner.
The petition is dismissed with costs.