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Addl. Commissioner of Income-tax Vs. M.P. Rungta - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 246 of 1972
Judge
Reported in[1979]116ITR245(MP)
ActsIncome Tax Act, 1922 - Sections 34, 34(1) and 34(4); Income Tax Act, 1961 - Sections 147, 148, 149(1), 256, 297 and 297(2)
AppellantAddl. Commissioner of Income-tax
RespondentM.P. Rungta
Appellant AdvocateP.S. Khirwadker, Adv.
Respondent AdvocateY.S. Dharmadhikari and ;B.L. Nema, Advs.
Cases Referred and S. S. Gadgil v. Lal and Co.
Excerpt:
.....any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the act or excessive loss or depreciation allowance has been computed, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the income-tax officer has in consequ and the provisions of this act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section :provided that--(i) the income-tax officer shall not issue a notice under this sub-section, unless he has recorded his..........any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the act or excessive loss or depreciation allowance has been computed, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the income-tax officer has in consequence of information in his possession reason to believe that income, profits and gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive.....
Judgment:

G.P. Singh, J.

1. This is a reference made by the Income-tax Appellate Tribunal under Section 256(1) of the I.T. Act, 1961, at the instance of the Addl. CIT.

2. The assessee is a non-resident 'individual'. The relevant assessment year is 1947-48 for which the previous year ended on 31st March, 1947. It came to the notice of the ITO that the assessee had purchased on 26th April, 1946, a bank draft at Delhi for remitting a sum of rupees one lakh to Jaipur, where it was placed in fixed deposit in four equal amounts of Rs. 25,000 each in different names. As the ITO had reason to believe that the said income of rupees one lakh had escaped assessment, he initiated proceedings under Section 147(a) of the I.T. Act, 1961, with prior approval of the CBR by issuing a notice under Section 148 on 3rd February, 1964, which was served on the assessee on 12th February, 1964. The assessee filed a nil return under protest and declared an amount of rupees one lakh in column D of the return. The assessment was made by the ITO by adding the sum of rupees one lakh as income from undisclosed sources. The Income-tax Appellate Commissioner and the Tribunal, however, both came to the conclusion that the action of the ITO in reopening the assessment under Section 147(a) read with Section 148 was bad in law. This view was taken on the reasoning that the right to reopen the assessment was already barred under Section 34(1)(a) of the Indian I.T. Act, 1922, on 1st April, 1962, when the 1961 Act came into force and, therefore, Section 297(2)(d)(ii) of the 1961 Act did not revive the right of the ITO to reopen the assessment. Reliance for this view was placed on the ruling of the Supreme Court in J.P. Jani, ITO v. Induprasad Devshanker Bhatt : [1969]72ITR595(SC) . In reaching the conclusion that the right to reopen the assessment was barred under Section 34(1)(a) of the 1922 Act on 1st April, 1962, it was held that the amendment made in Section 34(1) of the 1922 Act by the Finance Act, 1956, which came into force on 1st April, 1956, and which provided that the notice in those cases where the escapement was of rupees one lakh or more could be issued at any time was of noavail as the period of eight years within which notice could be issued under the section as it till then stood had expired on 31st March, 1956, a day before the Finance Act came into force, and this vested right of the assessee was not taken away by the Finance Act.

3. The question of law referred to us is as follows :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the action of the Income-tax Officer in reopening the assessment under Section 147(a) read with Section 148 was bad in law ?'

4. Section 297(2)(d)(ii) of the 1961 Act enables the ITO to issue the notice under Section 148 read with Section 147(a) as no proceeding for reassessment had been pending under Section 34 of the 1922 Act when the 1961 Act came into force. The notice issued was also well within the time limit of sixteen years prescribed by Section 149(1)(a)(ii) of the 1961 Act. But the ruling of the Supreme Court in J.P. Jani's case : [1969]72ITR595(SC) is that Section 297(2)(d)(ii) of the 1961 Act has not the effect of taking away any right vested in the assessee by operation of the 1922 Act. So the question to be considered by us is whether the power of the ITO to reopen the assessment under Section 34(1)(a) of the 1922 Act was already barred on 1st April, 1962, when the 1961 Act came into force. The examination of this question requires reference to Section 34(1) of the 1922 Act as it stood from time to time. It is not necessary to go back beyond 1948. By the Income-tax and the Business Profits Tax (Amendment) Act, 1948, a new Section 34 was substituted in place of the then existing section with effect from 30th March, 1948. The section as substituted also applied to assessment years prior to 1948-49 ; at any rate in those cases where the right to reopen the assessment under the old section had not become barred on the commencement of the 1948 Act. This was made clear by Section 31 of the I.T. (Amend.) Act, 1953. The Calcutta High Court in ITO v. Calcutta Discount Co. Ltd. : [1953]23ITR471(Cal) expressed the same view. The Calcutta High Court's decision in Calcutta Discount Co.'s case was reversed on other points by the Supreme Court in Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) , but the view that Section 34 as substituted in 1948 applied, to assessment years prior to 1948-49 was not disputed. There was also no difference on this point in S.C. Prashar v. Vasantsen Dwarkadas : [1963]49ITR1(SC) and the Calcutta High Court's view in Calcutta Discount Co.'s case : [1953]23ITR471(Cal) was approved. It is not necessary to elaborate on this aspect any further as the arguments before us have proceeded on the basis that Section 34 as substituted in 1948 applied for the assessment year 1947-48. The section in so far as relevant for our purposes reads as follows :

'34. (1) If--

(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his incomeunder Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act or excessive loss or depreciation allowance has been computed, or

(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits and gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed,

he may in cases falling under Clause (a) at any time within eight years, and in cases falling under Clause (b) at any time within four years of the end of that year, serve on the assessee, or if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section :

Provided that--

(i) the Income-tax Officer shall not issue a notice under this sub-section, unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice ;

(ii) the tax shall be chargeable at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be ; and

(iii) where the assessment made or to be made is an assessment made or to be made on a person deemed to be the agent of a non-resident person under Section 43, this sub-section shall have effect as if for the periods of eight years and four years a period of one year was substituted.'

5. Far-reaching changes were made by the Finance Act, 1956, which came into force on 1st April, 1956. The time limit of eight years was omitted from Sub-section (1) of Section 34, as regards cases falling under Clause (a). Further, in place of the then existing provs. to Sub-section (1), the Act substituted the following provs.:

'Provided that the Income-tax Officer shall not issue a notice under Clause (a) of Sub-section (1)--

(i) for any year prior to the year ending on the 31st day of March, 1941 ;

(ii) for any year, if eight years have elapsed after the expiry of that year, unless the income, profits or gains chargeable to income-tax which have escaped assessment or have been under-assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount to, or are likely to amount to, one lakh of rupees or more in the aggregate, either for that year, or for that year and any other year or years after which or after each of which eight years have elapsed, not being a year or years ending before the 31st day of March, 1941 ;

(iii) for any year, unless he has recorded his reasons for doing so, and, in any case falling under Clause (ii), unless the Central Board of Revenue, and, in any other case, the Commissioner, is satisfied on such reasons recorded that it is a fit case for the issue of such notice :

Provided further that the Income-tax Officer shall not issue a notice under this sub-section for any year, after the expiry of two years from that year, if the person on whom the assessment or reassessment is to be made in pursuance of the notice is a person deemed to be the agent of a nonresident person under Section 43 :

Provided further that the tax shall be chargeable at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be.'

6. The effect of the 1956 Act was to remove the limit of time where the escapement was likely to amount to rupees one lakh or more and to retain the eight years period for cases involving escapement of less than one lakh of rupees.

7. The section was further amended by the I.T. (Amend.) Act, 1959, which came into force on 12th March, 1959. Section 2 of the 1959 Act added Sub-section (4) in Section 34 as follows :

'(4) A notice under Clause (a) of Sub-section (1) may be issued at any time notwithstanding that at the time of the issue of the notice the period of eight years specified in that sub-section before its amendment by Clause (a) of Section 18 of the Finance Act, 1956 (XVIII of 1956), had expired in respect of the year to which the notice relates.'

8. There was a saving clause contained in Section 4 of the 1959 Act which read as under:

'Saving of notices, assessments, etc., in certain cases.--No notice issued under Clause (a) of Sub-section (1) of Section 34 of the Principal Act at any time before the commencement of this Act and no assessment, reassessment or settlement made or other proceedings taken in consequence of such notice shall be called in question in any court, Tribunal or other authoritymerely on the ground that at the time the notice was issued or at the time the assessment or reassessment was made, the time within which such notice should have been issued or the assessment or reassessment should have been made under that section as in force before its amendment by Clause (a) of Section 18 of the Finance Act, 1956 (18 of 1956), had expired.'

9. As earlier stated, the assessment year with which we are concerned in this case is 1947-48 and the amount of income escaping assessment is rupees one lakh. The period of time provided for reopening assessment under Section 34(1)(a), as introduced by the 1948 Act was eight years. This period expired on 31st March, 1956. The amendments made in Section 34(1) by the 1956 Act removed the time limit of eight years for reopening an assessment in cases where the escapement of income was rupees one lakh or more. The restriction as to time of eight years was retained in respect of those cases where the escapement was likely to amount to less than rupees one lakh. This is the effect of prov. (ii) to Section 34(1) which was inserted by the 1956 Act. The amendments made in Section 34(1) by the 1956 Act came into force on 1st April, 1956. On the expiry of the period of eight years provided in Section 34(1) as introduced by the 1948 Act, the assessee on 31st March, 1956, got a vested right as he could tell himself that no proceeding having been taken, he was safe from having his assessment reopened. Although, the 1956 Act removed the restriction as to time in cases falling under Section 34(1)(a) in which the escapement of income was likely to be rupees one lakh or more, this change could not apply to the assessee for the year 1947-48 for which his vested right had arisen as the 1956 Act did not expressly or by necessary implication express an intention to take away this vested right. Indeed, this was the view taken by the Calcutta High Court in Debt Dutta Moody v. T. Bellan : AIR1959Cal567 . It was to get over this decision that the 1959 Act was passed by Parliament which inserted Sub-section (4) in Section 34 and enacted a saving clause. These two provisions came up for consideration before the Supreme Court in S.C. Prashar v. Vasantsen Dwarka-das [1963] 49 ITR 1. In that case, the relevant assessment year was 1942-43 and the notice for reopening the assessment was served on 30th April, 1954. The estimated escapement of income was less than rupees one lakh. It will be seen that the notice was issued after the expiry of eight years prescribed by Section 34(1)(a) as inserted by the 1948 Act. The question before the Supreme Court was whether this notice was validated by the saving clause contained in Section 4 of the 1959 Act. The minority view was that the 1959 Act was passed to get over the decision of the Calcutta High Court in Debi Dutta's case : AIR1959Cal567 , and the saving clause was intended to validate notices issued after the 1956 Act came into force but the time barred notices served prior to the coming into force of the 1956 Act were not validated by the saving clause especially when the escape-ment of income was less than rupees one lakh. The majority, however, was of the view that even such notices were validated. Whatever difference of opinion may have been on the ambit and scope of the saving clause in Section 4 of the 1959 Act, there appears to have been no difference of opinion on the construction of Sub-section (4) inserted in Section 34 by the 1959 Act. Even, according to the minority opinion, the sub-section was intended to authorise action for reassessment after coming into force of the 1959 Act where action under Section 34(1)(a) had already become time barred before its amendment by the 1956 Act: [See the judgment of S.K. Das and Kapur JJ. : [1963]49ITR1(SC) ). See further the judgment of Sarkar and Hidayatullah JJ., at pp. 1380, 1385, 1388, 1389 : [1963]49ITR1(SC) )]. The defence of vested right which succeeded before the Calcutta High Court in Debi Dutta's case : AIR1959Cal567 , was completely taken away by Sub-section (4). The sub-section authorised the issue of a notice under Section 34(1)(a) at any time notwithstanding that at the time of the issue of the notice the period of eight years specified therein before its amendment by the 1956 Act had expired in respect of the year for which the notice was issued. The sub-section was wholly unnecessary to authorise issue of notices for the years following the commencement of the 1956 Act or for the years before its commencement in respect of which the period of eight years had not expired at the time of its commencement. Its real purpose was to get over the decision of the Calcutta High Court in Debi Dutta's case : AIR1959Cal567 , and to authorise issue of notices for the years governed by the 1948 Act in respect of which the period of eight years prescribed therein had expired before the commencement of the 1956 Act. Sub-section (4) has to be given a construction which achieves this purpose otherwise it would be reduced to an entirely useless provision. Further, as stated earlier, this construction is supported by the history of the provision and the Supreme Court decision in S.C. Prashar's case [1963] 49 ITR 1. For these reasons, our conclusion is that the vested right accruing to the assessee after the expiry of eight years under Section 34(1)(a) before its amendment in 1956 was taken away by Sub-section (4) introduced by the 1959 Act and the right to reassess him was not barred before 1st April, 1962, when the 1961 Act came into force. The notice issued by the ITO in February, 1964, under Section 148 read with Section 147(a) of the 1961 Act was, therefore, valid.

10. Learned counsel for the assessee submitted before us that if Sub-section (4) had that effect, it would have been noticed in J.P. Jani's case : [1969]72ITR595(SC) , and the applicability of Sections 147(a) and 148 of the 1961 Act would not have been negatived on the ground that the right to reopen the assessment had become barred before 1st April, 1962, when the 1961 Actcame into force. In Jani's case : [1969]72ITR595(SC) , the department conceded that the right to reopen the assessment had become barred and no reference was made to Sub-section (4) of Section 34 in that case. Jani's case : [1969]72ITR595(SC) , therefore, cannot be relied upon as an authority on the construction of that sub-section. Further, Jani's case was a case where the escapement of income was less than rupees one lakh. Paragraph 2 of the judgment in that case shows that the total income of the assessee was reassessed at Rs. 89,000 by including the escaped income. It will be recalled that even after the amendment of Section 34(1) by the 1956 Act restriction as to period of eight years for reopening an assessment had been retained for those cases where the escapement of income was likely to be less than rupees one lakh. Jani's case : [1969]72ITR595(SC) was a case of this type and was thus governed by the rule of eight years. Sub-section (4) did not remove the bar of expiry of time as prescribed by Sub-section (1) of Section 34 as amended by the 1956 Act. Sub-section (4) had thus no application to Jani's case : [1969]72ITR595(SC) , and it was possibly for this reason that it was not noticed in the Supreme Court. In the instant case, the escapement of income is rupees one lakh. There was no time limit for such a case under Section 34(1)(a) as amended by the 1956 Act. Sub-section (4) of Section 34 inserted by the 1959 Act applied to the instant case. The decision infant's case : [1969]72ITR595(SC) , is thus also distinguishable on facts.

11. Learned counsel for the assessee pressed before us the rule of construction that an Amending Act should not be construed to open up liability which had become barred. Apart from J.P. Jani's case : [1969]72ITR595(SC) , learned counsel relied upon the cases of State of Tamil Nadu v. Star Tobacco Co. : AIR1973SC1387 and S. S. Gadgil v. Lal and Co. : [1964]53ITR231(SC) . It is true that it is a well-settled rule of construction that fiscal legislation imposing liability is governed by the normal presumption that it is not retrospective and that a new Act or a new amendment to an existing Act is not construed so as to open up liability which had become barred by lapse of time. But this rule of construction, like any other rule of construction, has only a presumptive value and when the legislature, either by express words or by necessary implication, permits opening up of liability which had become barred, the courts cannot defeat the intention of the legislature by resort to any rule of construction. As earlier expressed by us, Sub-section (4) of Section 34 introduced by the 1959 Act empowered the issuance of a notice under Section 34(1)(a) for an assessment year for which the period of eight years prescribed by the 1948 Act had expired and the argument based on accrual of vested right after the lapse of eight years is not open to the assessee in view of the clear intention of Parliament.

12. Learned counsel for the assessee then pointed out that Sub-section (4) of Section 34 was not relied upon by the department before the Tribunal and it is notreferred to in the order of the Tribunal. It was also pointed out that in the application for reference under Section 256(1), the department wanted that a question as to the applicability of Sub-section (4) should also be referred but that prayer was refused by the Tribunal on the ground that this question did not arise out of the order of the Tribunal. On these grounds, learned counsel argued that it is not open for the department to rely upon Sub-section (4) before us in this reference. It is true that no reliance was placed before the Tribunal on Sub-section (4) which is not even referred to in the order of the Tribunal. It is also true that the department wanted that the question relating to the applicability of Sub-section (4) be referred as a separate question and that prayer was refused by the Tribunal. Indeed, the department has filed an application in this court under Section 256(2) (M. C. C. No. 657 of 1972), for directing the Tribunal to refer the said question. In our opinion, however, the question referred to us is wide enough to cover the applicability of Sub-section (4). It is well settled that every aspect of a question is not itself a distinct question : [See CIT v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) ]. The Tribunal dealt with the question whether the notice issued by the ITO under Section 148 read with Section 147(a) of the 1961 Act was bad for the reason that the period of time prescribed under Section 34(1)(a) of the 1922 Act had expired before 1st April, 1962, when the 1961 Act came into force. The applicability of Sub-section (4) of Section 34 as introduced by the 1959 Act, is only one aspect of this question. Even if the Tribunal did not refer to or consider Sub-section (4), we are not precluded from considering its applicability. In S.C. Prashar's case : [1963]49ITR1(SC) , Hidayatullah J., at one place (page 66) observed that:

'No decision of this court lays down that in determining the true answer to a question referred under Section 66 (of the 1922 Act), this court is confined only to those sections to which the Tribunal or the High Court referred. Indeed, there are many cases which say the contrary.'

13. We can, therefore, look to Sub-section (4) for finding out the correct answer to the question referred. The application made by the department in this court for directing the Tribunal to refer a separate question as to the applicability of Sub-section (4) appears to have been made as a matter of abundant caution. The making of this application does not preclude us from proceeding with this reference and considering Sub-section (4).

14. For the reasons given above, we answer the question referred to us infavour of the department and against the assessee. In our opinion, theTribunal was not justified in holding that the action of the ITO in reopening the assessment under Section 147(a) read with Section 148 was bad in law. Thereshall be no order as to costs of this reference.


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