A Hindu undivided family carried on business under the name and style of Messrs. Hirday Narain Yogendra Prakash at Bareilly. The family suffered partition, and an application under section 25A of the Income-tax Act, 1922, was allowed by the Income-tax Officer who recognised the partition with effect from November 19, 1949. The erstwhile members of the family entered into a partnership for carrying on the business hitherto belonging to the family. This business was carried on by the partnership under the same name and style. The partnership firm (hereinafter referred to as 'the assessee') was registered under section 26A for the assessment year 1951-52. Certain changes were effected in the constitution of the firm, and for the assessment year 1953-54 an application was made by the reconstituted firm for registration under section 26A. The Income-tax Officer, however, made an order on February 5, 1955, refusing to recognise these changes and declined, therefore, to grant registration. An appeal by the partnership firm was allowed by the Appellate Assistant Commissioner on February 4, 1956, and he directed registration of the firm under section 26A. The order by the Income-tax Officer granting registration was made on February 9, 1956. The Income-tax Officer had already commenced assessment proceedings for the assessment years 1953-54 to 1956-57. These proceedings were being taken by him simultaneously. The proceedings for all those assessment years were still pending before him when, according to the assessee, the Income-tax Officer was informed that the assessee desired to disclose a sum of Rs. 1,00,000 for assessment in the four assessment years, 1953-54 to 1956-57, the entire sum to be distributed equally between the four assessments. The assessee alleged that negotiations in this behalf continued for some time between it and the Income-tax Officer, but that finally it was decided that the entire amount of Rs. 1,00,000 should be offered for assessment for the assessment year 1953-54 as income from business. That some negotiations of this nature were in fact taken is apparent from a letter dated February 24, 1956, from the Income-tax Officer to the assessee. On March 2, 1956, the assessee filed an application before the Income-tax Officer in the proceedings for the assessment year 1953-54 proposing the inclusion of the sum of Rs. 1,00,000 as income from business and stating that this amount was being duly introduced in the accounts of all the partners of the firm in the relevant accounting year. On March 28, 1956, the Income-tax Officer made an assessment order for the assessment year 1953-54, but in that order he made no reference to the negotiations, which have been alleged by the assessee, nor did he refer to the application dated March 2, 1956. He did include the sum of Rs. 1,00,000 in the total income assessed by him, but he justified that addition on the basis that the amount represented the sum by which the assessee had inflated the claim for expenditure in respect of three forests, the Nepal forest, the Bans Bassa forest and the Tanakpur forest, worked by it. Assessment orders were also made for the assessment years 1954-55 to 1955-56. The assessee appealed against the four assessment orders, but as these appeals did not relate to the dispute which has been raised before me, no further reference need be made to them.
The assessee made entries on July 24, 1956, crediting the individual accounts of the six partners of the assessee with a sum of Rs. 16,666-10-8 the total of the sums so credited being Rs. 1,00,000. When the Income-tax Officer commenced proceedings for the assessment year 1957-58, he made enquiries about the nature and source of this sum of Rs. 1,00,000, and on March 25, 1958, recorded the statement on oath of Yogendra Prakash, one of the partners. Yogendra Prakash stated that the sum of Rs. 1,00,000 had been kept in cash with Hirday Narain, father of the partners, that this sum, which had never been incorporated in the account books earlier, was introduced in cash on July 24, 1956, by crediting the accounts of the six partners equally, that it represented the accumulated income of several years in the past and did not represent any amount earned in the relevant previous year under assessment. He added that the sum had been offered for assessment for the assessment year 1953-54 and pursuant to that order it had been introduced in the individual accounts of the partners. The Income-tax Officer did not accept the statement of Yogendra Prakash and included the amount of Rs. 1,00,000 as inflated expenses claimed for that year. The Appellate Assistant Commissioner, however, set aside the finding of the Income-tax Officer and after examining the account books of the assessee he found that a deposit of Rs. 1,00,000 had been made on the first page of the cash book for a newly started business at Raxaul, the first page covering transactions for the period November 1, 1955 to November 10, 1955, that the deposit was made in the name of Hirday Narain, that Rs. 58,750 was paid to the Government of Nepal as earnest money on account of forest contracts while the balance was utilised in the business of the assessee on subsequent dates but before July 24, 1956, and he deduced from these facts that the sum of Rs. 1,00,000 which had been introduced at the commencement of the year had been divided on July 24, 1956, among the partners. He directed the Income-tax Officer to make a fresh assessment after examining the account books and making further enquiries. The Income-tax Officer then recommended proceedings for the assessment year 1957-58. During the pendency of those proceedings, he also issued a notice dated January 7, 1959, under section 34(1) for the assessment year 1956-57. The assessee challenged the validity of the notice by a petitioner (Writ Petition No. 224 of 1959) in this court but for some reason did not press it and it was accordingly dismissed. Meanwhile, on March 31, 1959, the Income-tax Officer included the sum of Rs. 1,00,000 as income from other sources in the assessment order for the assessment year 1957-58. He took no further proceedings upon the notice under section 34 for the assessment year 1956-57. The assessee claims before me that the proceedings were dropped while the case of the Income-tax Officer is that the proceedings under section 34 were filed. The assessee appealed against the assessment order dated March 31, 1959, for the assessment year 1957-58, and the Appellate Assistant Commissioner directed the exclusion of the said sum of Rs. 1,00,000 from the assessment on the finding that as the sum had been introduced during the period November 1, 1955, to November 10, 1955, it fell for consideration for the assessment year 1956-57. He also proceeded to examine the matter on its merits and gave various findings in this regard, but upon appeal by the assessee to the Income-tax Appellate Tribunal these observations and findings were deleted.
On February 5, 1963, the Income-tax Officer issued a notice under section 148 of the Income-tax Act, 1961, for the assessment year 1956-57 to the assessee. It is also stated that similar notices were issued to the individual partners of the assessee. On September 7, 1963, after proceedings consequent to that notice had been initiated by the Income-tax Officer, on objection was filed challenging the validity of the proceedings, and on December 26, 1963, an attempt was made to dissuade the Income-tax Officer from continuing the proceedings on the plea that they were invalid. The attempt was of no avail. On April 16, 1964, the instant petition under article 226 of the Constitution was filed. The assessee prays for certiorari to quash the notices issued under section 148 and for prohibition restraining the Income-tax Officer from proceeding further with the reassessment.
The first contention raised by the assessee is that there was no jurisdiction in the Income-tax Officer to proceed under section 147 because the Income-tax Officer having been informed by the application dated March 2, 1956, that a sum of Rs. 1,00,000 was available for being taxed, there was no omission or failure on the part of the assessee to disclose fully and truly all material fact necessary for its assessment. It is submitted that the only material fact necessary for the assessment of the assessee was that a sum of Rs. 1,00,000 had not been tendered for assessment earlier and that it was liable to tax, and it was then for the Income-tax Officer to determine whether the said sum was liable to be included in the assessment. Reliance is placed upon the decision of the Supreme Court in Calcutta Discount Company Ltd. v. Income-tax Officer. It is not possible to accept this contention. The application dated March 2, 1956, prayed that the sum of Rs. 1,00,000 should be included in the assessment year 1953-54 as income from business. It was not a statement made in respect of the assessment year 1956-57. Even if it be assumed that the Income-tax Officer, because he was taking assessment proceedings for the two assessment years simultaneously, could consider the statement in proceedings for the assessment year 1956-57, the mere assertion that a sum of Rs. 1,00,000 had not been returned for assessment earlier does not in itself confer immunity upon the assessee from the provisions of section 147. Clause (a) of that section comes into operation if the assessee has omitted or failed to disclose 'fully and truly all material facts necessary for its assessment for that year'. From the information supplied by the assessee it cannot, in my opinion, be said that the assessee disclosed fully all material facts necessary for its assessment for the assessment year 1956-57. Such material facts must include the amount of the receipt, the date of the receipt and the source of that receipt. It is true, as was held in Calcutta Discount Company Ltd., that the duty of an assessee does not extend beyond the field of truthful disclosure of the primary facts and he is not required to indicate the inferences which can be drawn from such disclosure, but the Supreme Court clearly laid down in that case that the assessee was under a duty to disclose all the primary facts relevant to the decision of the question before the assessing authority whether income chargeable to tax had escaped assessment for the relevant assessment year. In my judgment, the mere offer that a sum of Rs. 1,00,000 should be included as income from business for the assessment year 1953-54 does not suffice to take the case of the assessee out of the scope of clause (a) of section 147. It is contended for the Income-tax Officer that the disclosure was not a true disclosure of the material facts and that the assessee set up a different case at another stage before the Income-tax Officer. Having held that the case set up by the assessee before the Income-tax Officer in the application of March 2, 1956, is not sufficient to support the contention raised before me, it is not necessary to consider whether the different versions put forward by the assessee can be reconciled. It cannot, therefore, be said that the impugned notice is invalid because the assessee had not omitted or failed to disclose fully and truly all material facts necessary for its assessment for the assessment year 1956-57.
The next contention, only faintly pressed, on behalf of the assessee is that the notice was barred by limitation. The submission is that because the Income-tax Appellate Tribunal deleted the findings of the Appellate Assistant Commissioner in the appeal for the assessment year 1957-58 that a sum of Rs. 1,00,000 represented income taxable for the assessment year 1956-57, there was no finding or direction in the order of the Appellate Assistant Commissioner the result of which was to raise the bar of limitation for making the assessment for the assessment year 1956-57. This submission, it seems to me, does not raise for consideration in the instant case. As the income chargeable to tax which has escaped assessment amounts to Rs. 1,00,000 and the provisions of clause (a) of section 147 apply, the period of limitation is 16 years from the end of the assessment year 1956-57. It cannot be disputed that the notice under section 148 was issued within that period. It is, therefore, not necessary to seek the assistance of a provision raising the bar of limitation applicable to cases where the reassessment is in consequence of, or to give effect to, a finding or direction contained in another order. It is also urged that the Income-tax Officer having included the sum of Rs. 1,00,000 for the assessment year 1953-54, the same sum could not be included for the assessment year 1956-57. That is, however, a matter falling for consideration before the Income-tax Officer when he proceeds to make the assessment order for the assessment order for the assessment year 1956-57. It will be open to him to consider whether the sum of Rs. 1,00,000 assessed for the assessment year 1953-54 is the very same sum which he is now proceeding to assess for the assessment year, 1956-57 and even if so, whether the sum property falls for assessment in the one or the other assessment year. The contention does not raise any issue of jurisdiction or manifest error of law and, therefore, cannot be raised upon the petition before me.
Then, learned counsel for the assessee urges that the provisions of section 147(a) cannot be applied in respect of the assessment year 1956 -57. To so apply it, he urges, is to give the provisions retrospective operation which neither expressly nor by necessary implication does the Income-tax Act of 1961 intend. This contention must also be negatived. The Income-tax Act, 1961, replaced the Income-tax Act, 1922. Section 297(1) of the Act of 1961 expressly repeals the Act of 1922. But, then, notwithstanding the repeal of the Act of 1922, provision has been made to save the validity of proceedings taken but not completed under the Act of 1922. For the purposes of this case, a few clauses of section 297(2) may be noticed. Clause (a) provides that if a return of income has been filed before the commencement of the Act of 1961 (hereinafter referred to as the new Act) for any assessment year, proceedings for the assessment for that year may be taken and continued as if the new Act had not been passed. Clause (b) provides that if a return of income is filed after the commencement of the new Act, otherwise then in pursuance of a notice under section 34 of the repealed Act, for the assessment year 1961-62 or any earlier year, the assessment for that year shall be made in accordance with the procedure specified in the new Act. Clause (d) deals with assessment years after the year 1939-40. It is divided into two parts. Sub-clause (i) provides that where a notice under section 34 of the repealed Act has been issued before the commencement of the new Act, proceedings in pursuance of that notice may be continued and disposed of as if the new Act had not been passed. Sub-clause (ii) provides that if income chargeable to tax has escaped assessment 'within the meaning of that expression in section 147' and no proceedings under section 34 of the repealed Act in respect of such income are pending at the commencement of the new Act, the procedure specified by the new Act shall apply. It is, therefore, apparent that in respect of assessment proceedings two classes of cases have been envisaged by Parliament. Where a return of income has been filed when the repealed Act was in force, and where a notice under section 34 of the repealed Act had been issued before the commencement of the new Act, the assessment proceedings must be taken as if the repealed Act had continued in force. Where, however, a return of income has been filed after the new Act was brought into force (and it was not a return pursuant to a notice under section 34 of the repealed Act), and where, after the new Act had come into force, it was necessary to take proceedings to bring to tax income which has escaped assessment and in respect of which income no proceedings under section 34 were pending it is the provisions of the new Act which apply. The instant case falls within the class envisaged by sub-clause (ii) of clause (d). It is plain from the opening words of clause (d) that its provision apply in respect of any assessment year after the assessment year 1939-40. They will, therefore, apply in respect of the assessment year 1956-57. But learned counsel for the assessee contends that in order to apply sub-clause (ii) of clause (d) there must be income which had escaped assessment 'within the meaning of that expression in section 147', and section 147, he points out, speaks of income which has escaped assessment because an assessee has omitted or failed to make a return under section 139 for any assessment year or has omitted or failed to disclose fully and truly all material facts necessary for his assessment for that year. The argument in substance is that as section 139 became law when the new Act was brought into force on April 1, 1962, the assessment year contemplated by section 147(a) must be the assessment year 1962-63 or thereafter, because it can only be an assessment year in respect of which a return under section 139 could be filed. Similarly, he goes on to urge that the omission or failure on the part of the assessee to disclose material facts necessary for his assessment for the year must bear reference to the assessment for the assessment year 1962-63 or thereafter. Now, to accept the contention of learned counsel would be to negative the entire object with which section 297(2) was enacted. The object behind the enactment of section 297(2) was the save the powers of the income-tax authorities in respect of certain matters, powers which could have been exercised under the Act of 1922, had that Act not been repealed. That being so, to give effect to the provisions of sub-clause (ii) of clause (d) of section 297(2) in this context, the phrase 'any income chargeable to tax had escaped assessment within the meaning of that expression in section 147' must be construed to mean simply income chargeable to tax which had escaped assessment because of the omission or failure on the part of the assessee to make a return for any assessment year or to disclose fully and truly all material facts necessary for his assessment for that year. It is the expression 'any income... had escaped assessment' which has been defined. It is that income in respect of which the assessee has not filed a return or has not disclosed fully and truly all materials facts necessary for its assessment. By attributing this construction to the provisions of sub-clause (ii) of clause (d), no change is being effected in the language of the sub-clause or in that of section 147(a). The question is one of construction only, and as observed by Denning L.J. (as he then was) in Seaford Court Estates Ltd. v. Ashe :
'It would certainly save the judges trouble if acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament... A judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it ou He must then do as they would have done. A judge must not alter the material of which the Act is woven, but he can and should iron out the creases.'
It is well-settled that the court should give that construction to a statutory provision which advances the object and suppresses the mischief for which the provision was enacted. Acceptance of the contention of learned counsel would mean that Parliament had intended, by enacting sub-clause (ii) of clause (d) of section 297(2), to provide that, notwithstanding the repeal of the Act of 1922, if income had escaped assessment because of the omission or failure on the part of an assessee to make a return under section 139 for the assessment year 1962-63 or thereafter, the Income-tax Officer could take proceedings to assess such income under the Act of 1961. Such construction would be manifestly absurd. I am firmly of the view that sub-clause (ii) of clause (d) gives statutory sanction to the proceedings initiated by the Income-tax Officer against the assessee for the assessment year 1956-57.
The last contention of learned counsel for the assessee is that even assuming that sub-clause (ii) of clause (d) of section 297(2) applied to the instant case, the income sought to be assessed is chargeable to tax for the assessment year 1956-57, and no assessment order can be made under the Act of 1961, because section 4 of that act is prospective and can only be applied in respect of the assessment year 1962-63 and the assessment years following thereafter. No legal fiction, he urges, has been incorporated in sub-clauses (ii) to enable the application of section 4 for charging income-tax for assessment years prior to the year 1962-63. There is no force in this contention. The income contemplated by sub-clause (ii) of clause (d) is income which is chargeable to tax for an assessment year prior to the year 1962-63. It is not necessary that section 4 should operate retrospectively in order to enable that income to be assessed. Section 4 provide :
'4. Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with.... this Act in respect of the total income of the previous year..... of every person.'
The Central Act referred to in section 4 is usually the Finance Act. The Finance Act, 1956, was enacted to give effect to the financial proposals of the Central Government for the financial year 1956-57, and section 2(1) provide :
'2. (1).... for the year beginning on the 1st day of April, 1956, -
(a) income-tax shall be charged at the rates specified in...'
Now, in order to appreciate the true effect of one Act upon the other it is necessary to determine the scope of operation of the two statutes. Income-tax is an annual tax, imposed by an annual Act. It is a duty granted annually by Act of Parliament, and, it is by the Finance Act that such duty is normally imposed. But for the annual grant of this duty, income-tax cannot be charged beyond the expiry of the year, and the machinery of Government would possibly come to a standstill for lack of further revenue. While the Finance Act imposes an obligation upon the subject to pay income-tax, the rules defining the quality of the liability and the machinery for assessing and collecting the tax are contained in the Income-tax Act. Unless the Finance Act imposes the tax, the provisions of the Income-tax Act cannot be brought into operation. There is no liability to tax for an assessment year until the Finance Act is passed. In Commissioner of Income-tax v. Western India Turf Club Ltd., the Privy Council observe :
'No liability to tax attached to the income of this company until the passing of the Act of 1925 (the Finance Act, 1925), and it was then to be taxed at the rate appropriate to a company.'
That the Income-tax act cannot be enforced in any particular year until the Finance Act has been passed was the view also taken by a Full Bench of the Madras High Court in Commissioner of Income-tax v. Valliammai Achi. The true legal position was clearly stated by the Privy Council in Maharajah of Pithapuram v. Commissioner of Income-tax in the following term :
'... it should be remembered that the Indian Income-tax Act, 1922, as amended from time to time, forms a code, which has no operative effect except so far as it rendered applicable for the recovery of tax imposed for a particular fiscal year by a Finance Act. This may be illustrated by pointing out that there was no charge on the 1938-39 income either of the appellant or his daughters, nor assessment of such income, until the passing of the Indian Finance Act of 1939 which imposed the tax for 1939-40, on the 1938-39 income and authorised the present assessment.'
And the Supreme Court, more recently, in Chatturam Horilram Ltd. v. Commissioner of Income-tax, explaining the correlation of the scheme of the Income-tax Act to the Finance Act, declare :
'The Income-tax Act is a standing piece of legislation which provides the entire machinery for the levy of income-tax. The Finance Act of each year imposes the obligation for the payment of a determinate sum for each such year calculated with reference to that machinery.... It is by virtue of this section (section 3 of the Income-tax Act, 1922) that the actual levy of the tax and the rates at which the tax has to be computed is determined each year by the annual Finance Acts. Thus, under the scheme of the Income-tax Act, the income of an assessee attracts the quality of taxability with reference to the standing provisions of the Act but the payability and the quantification of the tax depend on the passing and the application of the annual Finance Act. Thus, income is chargeable to tax independent of the passing of the Finance Act but until the Finance Act is passed no tax can be actually levied. A comparison of section 3 and 6 of the Act shows that the Act recognises the distinction between chargeability and the actual operation of the charge... Though, no doubt, sections 3 and 4 are the charging sections in the Act as pointed out in Chatturam v. Commissioner of Income-tax, at page 125 the wording of section 3 assumes the pre-existence of chargeable income as indicated in section 6. Hence, according to the scheme of the Act, the quality of chargeability of any income is independent of the passing of the Finance Act... By virtue of this deeming provision the Indian Finance Act of 1939 must be assumed even factually to have come into operation on the date specified and the tax must be taken to have become chargeable in that very year...'
From these observations of the Supreme Court it will appear that although the Income-tax Act contains provision for determining the quality of taxability of income, it presupposes the existence of chargeable income. It is the Finance Act which contains the provision charging income to tax. Once that charge has been imposed by the Finance Act, the provisions of the Income-tax Act come into play and in accordance with its provisions the quality of the income is determined and the liability assessed.
Corresponding to section 3 of the Income-tax Act, 1922, and section 4 of the Income-tax Act, 1961, in India, is section 1 of the British Income Tax Act, 1952, which read :
'1. Charge of income-tax. - Where any Act enacts that income tax shall be charged for any year at any rates, then, subject to the provisions of this Act, the tax at those rates shall be charged for that year in respect of all property, profits or gains respectively described or comprised in the Schedule contained in the sections of this Act enumerated below... and in accordance with the provisions of this Act respectively applicable to those Schedules.'
The true nature of income-tax has been discussed in Simons Income Tax as follow :
'Income tax (that is to say income-tax at the standard rate and surtax is an annual tax imposed by an annual Finance Act in respect of the current year. Rules of machinery, of liability and of assessment are contained in the Income Tax Acts, which would, however, have no effect in relation to any year in the absence of the annual charge of tax. Tax is imposed annually by Parliament, and is assessed and charged on annual profits or gains. In respect of every year a section is inserted in a Finance Act which charges income tax and surtax for that year, and which provides that all enactments relating to income-tax which had effect for the previous years shall continue to operate for the year in question. The same section fixes the rate of income tax, although, of course, this may be varied by a subsequent Act.'
That income-tax is an annual tax was brought out succinctly by Lord Hanworth M. R. in Luipaards Vlei Estate and Gold Mining Company Ltd. v. Commissioner of Inland Revenue, when he state :
'... Income tax is an annual tax. It is imposed by an annual Act. Unless the annual Act was passed, the powers in relation to income-tax would lie dormant.'
It is true that section 4 of our Income-tax Act, 1961, is referred to as a charging provision. But what that expression means is that where the Finance Act has imposed a charge upon income, then the charge is enforced by applying the provisions of section 4. Section 4 itself contemplates that a Central Act has enacted that income-tax shall be charged for an assessment year, and it says that where there is such Central Act, income-tax shall be charged for that year in accordance with the provisions of the Income-tax Act. That the charge is laid by the Central Act and not by the Income-tax Act is clear from the provisions of section 294 of the Income-tax Act which read :
'If on the 1st day of April in any assessment year provision has not yet been made by a Central Act for the charging of income-tax or super-tax for that assessment year, this Act shall nevertheless have effect until such provision is so made as if the provision in force in the preceding assessment year on the provision proposed in the Bill then before Parliament, whichever is more favourable to the assessee, were actually in force.'
The Finance Act, 1956, charged income to tax. It continued in operation, and any liability created by that Act would enable the assessment of a person for the assessment year 1956-57. Section 4 of the Income-tax Act, 1961, comes into play here merely to enforce a liability already created by the Finance Act, 1956. Any action taken by virtue of section 4 of the Income-tax Act, 1961, under the various provisions of that Act is being taken prospectively. It is taken to enforce a liability already created and continuing. No question arises of the retrospective application of section 4. This contention of the assessee must also, therefore, be rejected.
Learned counsel for the respondents contends that the instant petition is barred by laches. That contention cannot be accepted because it is apparent from the petition that the assessee attempted to have the proceedings quashed by the Income-tax Officer and it is only when after discussing the matter with the Income-tax Officer on December 26, 1963, the assessee failed in this attempt that it decided upon filing the instant petition. In any event, delay alone cannot defeat the instant petition because one of the reliefs claimed is a writ in the nature of prohibition, and the law is well settled that an application for prohibition is never too late so long as there is something left for it to operate upon. The further argument that the assessee had acquiesced to the jurisdiction of the Income-tax Officer must also be rejected because the assessee expressly filed an objection before the Income-tax Officer on September 7, 1963, pointing out his want of jurisdiction.
The contention raised on behalf of the assessee having been found to be without substance, this petition cannot succeed. It is accordingly dismissed with costs.