KHOSLA C.J. - There are two income-tax references before us (Income-tax References Nos. 22 and 24 of 1956) in which an identical question of law has been referred to this court for its opinion under section 66 of the Income-tax Act :
'Whether, on the facts and in the circumstances of the case, action under section 34 of the Patiala Income-tax Act as amended vide Ordinance No. 1, dated 1-1-2006 could by validly taken ?'
The assessee in Case No. 22 is Rai Bahadur Ishar Dass, Hamira. The year of assessment is 1943-44. The income accrued at Kapurthala in the year 1942-43. On the 20th of August, 1948, Kapurthala became part of Pepsu and the income-tax law, which was in force in Patiala, was extended to Kapurthala. In Samvat 2006 Bk., which corresponds to 1949, an Act amending the original Patiala Income-tax Act of 2001 Bk. was passed. By this amending Act the provisions of section 34 were changed. We are in this case concerned with the effect of this change.
The territory of Pepsu was integrated with the Indian Union for the purposes of income-tax administration on the 30th of April, 1950, by the Indian Finance Act of 1950. Notice to the assessee in this case under section 34 was given by the income-tax authorities and the assessee was assessed to an income-tax of Rs. 24,516-7-0. The assessee appealed to the Appellate Assistant Commissioner and the appeal was allowed. The assessment was annulled on the ground that the Income-tax Officer had no jurisdiction to issue a notice under section 34 of the amended law, because the assessment was in respect of a period prior to the coming into force of the new law and under the old law the time limit for starting proceedings under section 34 had already expired. In other words, the conclusion of the Appellate Assistant Commissioner was to the effect that assessment under section 34 in respect of the accounting year 1942-43 in Kapurthala could have only been made within one year of the assessment year, this being the law then applicable in the territory of Kapurthala. The right of the income-tax authorities to issue a notice under section 34 and to initiate proceedings was lost on the 31st of March, 1945, i.e., before the merger of the States constituting Pepsu took place on the 20th of August, 1948. The Patiala Act then became applicable to the territory of Kapurthala, but even under this Act the period for issuing notice under section 34 was only one year. Therefore, when the Patiala Act came into force in Kapurthala on the 20th of August, 1948, the income-tax authorities could not have issued any notice under section 34 to the assessee in respect of any tax due for the income accruing in the year 1942-43. In the year 2006 Bk., which corresponds to 1949, the Patiala Income-tax Act was amended. By this amendment the period for issuing notice under section 34 became eight years in those cases where the assessee had suppressed his income and four years in other cases. The amended Act, however, could not act retrospectively and the new law could not authorise the right to issue a notice which had lapsed under the old law.
Against this decision no appeal lay, but the Commissioner of Income-tax, acting suo motu under section 66, referred to this court for its opinion on the question cited above.
It has been urged on behalf of the income-tax department that the Appellate Assistant Commissioner was in error in coming to the conclusion that no notice under section 34 was competent. The argument of Mr. Sikri may be summarised briefly as :
(a) This is not a case of a statute being applied retrospectively, because the new section 34, in terms, applies to assessments within eight years of the issue of the notice;
(b) a proviso which existed in the old section 34 does not find place in the new section 34. By this proviso assessments in respect of periods more than a year before the Act of 2001 came into force were expressly excluded. The absence of the proviso from the new Act clearly indicates that no such exemption was contemplated or given by the new Act; and
(c) the principle of retrospective application does not apply to fiscal laws where the person, who is trying to evade State dues, cannot be said to acquire a vested right by the passage of time.
Before dealing with these three points it is necessary to dispose of a preliminary objection raised by Mr. Kirpa Ram Bajaj on behalf of the assessee. The objection was two-fold. He contended in the first place that the reference by the Commissioner of Income-tax could only have been made in the course of the assessment, and since in this case the order of the Appellate Assistant Commissioner had finally disposed of the matter leaving the Department no remedy by way of appeal or revision, assessment proceedings had come to an end, and what the Commissioner did was not in the course of any assessment. In the second place it was urged that the liability to pay income-tax arose under the Kapurthala law in force in 1942-43. That law had come to an end and, therefore, rights and liabilities, which existed under that law, were no longer alive. The Income-tax Officer, therefore, could not issue a notice under section 34 under the law which was not in force at the time the liability to pay the tax arose.
With regard to the first objection, it is clear that the matter was still open. Under the Act in force at the time the notice was issued, the order of the Income-tax Officer was appealable to the Appellate Assistant Commissioner. The assessee was given a further right of appeal, but the department had no such right if the case went against them. Nevertheless the Commissioner of Income-tax could, under section 33, 'of his own motion or at the instance of an Income-tax Officer, call for the record of any proceedings under this Act which had been taken by any authority subordinate to him or by himself'. There so no doubt that the Appellate Assistant Commissioner was subordinate to him in this sense of the word, although no appeal lay from the order of the Appellate Assistant Commissioner to the Commissioner. Our attention was drawn to section 5 of the Act by which the office of the Appellate Assistant Commissioner of Income-tax was created and added to the income-tax authorities. The new section provided :
'Appellate Assistant Commissioners shall be under the direct control of the Minister-in-charge and shall perform the functions of an Appellate Assistant Commissioner in respect of such persons or classes of persons or of such incomes or classes of incomes as may be assigned to them by the Minister-in-charge and in respect of the whole of the State or in respect of such area thereof as may be specified in the order of appointment.'
From this it was sought to be argued that the Appellate Assistant Commissioner is not an authority subordinate to the Commissioner but is directly under the Minister-in-charge. Section 32, however, clearly gives the assessee the right to appeal to the Commissioner from an order passed by the Appellate Assistant Commissioner. Therefore, the Appellate Assistant Commissioner is an authority subordinate to the Commissioner and under section 33 the Commissioner of Income-tax is entitled 'of his own motion or at the instance of the Income-tax Officer to call for the record of any proceedings under this Act which have been taken by any authority subordinate to him or by himself.'
Therefore, it is clear that as an appeal lies from the Appellate Assistant Commissioners order to the Commissioner, the Appellate Assistant Commissioner is an authority subordinate to the Commissioner. The Commissioner can, therefore, call for the record of the Appellate Assistant Commissioner and examine it. He is entitled to reopen any matter decided by the Appellate Assistant Commissioner and by so doing he is dealing with the matter in the course of an assessment. The matter cannot be considered finally disposed of nor is the Commissioner of Income-tax functus officio.
With regard to the other objection, it is clear that there is a continuity in law. When Kapurthala was integrated with Pepsu, the Kapurthala law, no doubt, came to an end, but immediately thereafter the Patiala Act became valid in Kapurthala. In the same ways when the Patiala Act was amended in 2006 Bk., the amended Act tool the place of the old Act.
It cannot, therefore, be said that by substitution of one Act for another all liabilities and rights under the old Act come abruptly and irrevocably to an end. The point for our consideration is whether under the new Act a notice could have been issued under section 34 in respect of the period more than eight years before the date of the issue of the notice.
This brings us to the merits of the case. The old section 34 was in the following terms :
'34. (1) If in consequence of definite information which has come into his possession the Income-tax Officer discovers that income, profits or gains chargeable to income-tax have escaped assessment in any year, or have been under-assessed, or have been assessed at too low a rate, or have been the subject of excessive relief under this Act the Income-tax Officer may, in any case in which he has reason to believe that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof, at any time within eight years, and in any other case at any time within four years of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the case of 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, 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 further that when the income, profits or gains concerned are income, profits or gains liable to assessment for a year ending prior to the commencement of this Act, or 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 were substituted.'
Therefore, what this section provided was that, where income-tax had escaped assessment, proceedings for assessment could be initiated even eight years later in the case of concealment of income and four years later in other cases. One exception was, however, provided, if the income related to a period more than a year before the passing of the Act (2001 Bk.), then proceedings could not be initiated after the expiry of one year. But for the proviso, proceedings could have been initiated eight years later, and since the Act was passed in 2001, the Income-tax Department could have issued notice under section 34 for assessment in respect of the year 1993 Bk. The proviso, however, introduced an exception. No proceedings could be initiated in respect of any period before the year 2000 Bk. As time proceeded, the income-tax authorities could take action even eight years afterwards in some cases and four years afterwards in some cases. Thus, to give a practical instance, when the Income-tax Act was passed in 2001 Bk., action could only have been taken in respect of the year 2000 Bk. In 2002 Bk. action could be taken in respect of the year 2000 and 2001. In the year 2005 Bk. action could be taken for the entire period 2000 to 2005 Bk. and lastly in case of concealment of income in the year 2008 Bk. action could be taken for the period 2000 to 2008 Bk. In the year 2006 Bk. however, section 34 was amended, the proviso was deleted and the new section contained no exception of the type contemplated by the proviso. The amended section 34 was :
'(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 income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for the year, any 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 if 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 or 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 re-assess 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 :...'
The proviso, which followed, has no reference to any exception similar to the exception contained in the old proviso.
Therefore, upon a plain reading of this section it is clear that in the year 2006 Bk. and thereafter proceedings under section 34 could be initiated in respect of any year within eight years if the case fell under clause (a) and within four years if the case fell under clause (b). It is, no doubt, true that for a brief period, namely, for the year 2006 Bk. incomes, which could not be taxed under the old law, could be taxed under the new law. Under the old law proceedings could not be taken in respect of the year 1999 Bk., because this period was more than a year before the passing of the Act of 2001 Bk., but proceedings could be taken after the amending Act of 2006 Bk. was passed, because the year 1999 Bk. was within eight years of 2006 Bk. It is not a case of applying an Act retrospectively where no provision is contained in the Act, but of interpreting the wording of the Act. The plain meaning of the amended section 34 is that proceedings can be initiated in respect of any year up to eight years or four years as the case may happen to be. It is instructive to note that subsequently, the ceiling of eight years was altogether removed and the new law is that action can be taken at any time in respect of concealed income. Parliament subsequently passed a declaratory Act clarifying the meaning of new section 34 in order to resolve any possible doubts. Now, it is quite clear that a notice issued in respect of a period even more than eight years old is valid notice. The matter was considered by a Division Bench of the Calcutta High Court in Income-tax Officer v. Calcutta Discount Co., Ltd. The judges were considering a similar change in law effected by the Income-tax and Business Profits Tax (Amendment) Act, 1948. It was argued in that case that the new section 34 could not act retrospectively. On the other hand, the department contended that there was no question of retrospective operation at all, and, in any event, section 34 was concerned with mere procedure in which no one had a vested right and, therefore, there was no bar to the applicability of the new section to past assessments. The learned judges observed that no question of retrospective operation arose in the case, and went on to say.
'The term retrospective operation, as has been observed, is ambiguous, because it is applied both to the fact that a particular enactment operates from before its date or so as to affect pre-existing rights and to the problem of construction which may be presented by an enactment as to whether it extends backwards or not. When an enactment extends backwards by its own clear language, it operates retrospectively, but presents no problem of construction.'
At page 489 the following pertinent observation appears :
'But since section 34 had a predecessor which prescribed the same limits of time for initiation of proceedings, more or less in the same circumstances, it would prima facie appear that by the new section no pre-existing rights are adversely affected. It is important to remember that the section imposes no new burden of tax and indeed creates no liability at all. Where there is an assessable income, the liability to tax has already attached to it under the charging sections of the Act; its measure has also been determined under the provisions of the relevant Finance Act, although it may not have been computed or fully computed. Section 34 only authorises and enquiry with a view to verifying whether there was an assessable income which has escaped assessment or has not been fully assessed and it also authorises an assessment or re-assessment if the enquiry results in an affirmative finding. From one point of view, a vested right claimed in such circumstances would seem to be a right not to pay the legally due or a right to retain ones concealments which, in the words of an English case, is a right worthy of little respect and indeed not a right at all.'
Another case in which the applicability of section 34 was considered is Baxiram Rodmal v. Commissioner of Income-tax. A Division Bench of the Nagpur High Court in this case considered the amendment made by Act XLVIII of 1948. It was held that so far as cases coming within clause (a) of section 34 (1) are concerned all assessment years ending within eight years from 30th March, 1948, and from subsequent dates are within its purview.
A contrary view was expressed by the Madras High Court in Janaba Muhamad Hussain Nachiar Ammal v. Commissioner of Income-tax. In this case the period of four years under the old section 34 had run out and the question was whether the period of eight years under the amended section would apply to proceedings which were being initiated for assessment. The Madras High Court answered this question in the negative and in favour of the assessee. In coming to this conclusion the learned judge proceeded on the principle that if a right is acquired by a subject by the lapse of time, any change in the law of limitation. It is not a case of an enforcement of right or destroying a right which has accrued. Here it is a case of suppression of information or evasion of income-tax and the right to withhold income-tax due cannot be said to be a right which becomes vested by the passage of time. I may here make a reference to an observation made by Lord Greene M. R. in Lord Howard de Walden v. Inland Revenue Commissioners :
'The fact that the section (section 18 of the Finance Act, 1936), has to some extent a retroactive effect appears to us of no importance when it is realised that the legislation is a move in a long and fiercely contested battle with individuals who will understand the vigour of the contest.'
A decision of the Bombay High Court in S. C. Prashar v. Vasantsen Dwarkadas, appears to have proceeded on the same considerations. It seems to me that it is not a case of the assessee acquiring vested rights or of the relief available to the income-tax department becoming barred by time. The plain meaning of the section seems to be that proceedings can be initiated within eight years of the period for which the assessment is to be made. The previous Act of 2001 Bk. contained a proviso the effect of which was to exempt all assessments which were more than a year old at the time the Act was passed. The omission of the proviso from the amended Act shows that no such exception was contemplated.
For these reasons, I would answer the question referred to us in the affirmative. I would make no order as to costs of the proceedings before us.
S. S. DULAT J. - I agree.
Question answered in the affirmative.