1966 PLP 683 (PTD)

RAJAGOPALAN, J.--The petitioner is the son of late S. K. Mohideen hereinafter referred to as the assessee. The assessee was a partner of Dinshaw & Co., and of the firm Palaniappa Chettiar (Jupiter Pictures) among other concerns. The assessment of Mohideen for the assessment years 1946-47 and 1947-48 was completed on 20th February 1950. By that date the assessment of the firm of Palaniappa Chettiar for 1947-48 and that of Dinshaw & Co., for the years 1946-47 and 1947-48 had not been completed. Mohideen's assessment was, however, completed accepting provisionally his estimates of his share of the losses of those two partnership concerns. The assessee's share of the lossess of Dinshaw & Co. was shown as Rs. 20,000 for 1946-47 and as Rs. 10,000 for 1947-48 and his share of the losses in the firm of Palaniappa Chattiar for 1947-48 was shown as Rs. 12,

436. The assessment of Dinshaw & Co. for both the years was completed on 31st October 1950. As against the Rs. 20,000 provisionally accepted as the assessee's share of the loss for 1946-47, Rs. 15,839 was ascertained as his share. For the assessment year 1947-48 the assessee's share of the loss was ascertained as Rs. 1,046; the provisional basis for assessment was Rs. 10,

000. The assessment of the firm of Palaniappa Chettiars for 1947-48 was completed on 30th June 1951, when the assessee's share of the losses was determined as Rs. 2,009 as against the provisionally accepted figure of Rs. 12,

346. Act XXV of 1953, which amended section 35 of the Income-tax Act (hereinafter referred to as the Act) and added sub-clause (5) to section 35, received the assent of the President of 24th May 1953. But, as section 1(2) of Act XXV of 1953 directed that this amendment among others should be deemed to have come into force on 1st April 1952, the position was as if section 35 (5) had become part of the Act on 1st April 1952. On 4th May 1953, that is, even before the Act XXV of 1953 received the assent of the President the Income-tax Officer issued a notice to the assessee under section 35 of the Act to show-cause why the assessment for 1946-47 and 1947-48 should not be rectified on the basis of the completed assessments of Dinshaw & Co. and Palaniappa Chettiar. The assessee represented that that could be done if the law permitted it. The Income-tax Officer, however recorded: The assessee in his reply dated 24th March, 1954, intimated that he has no objection to the revision of the assessment." It was not disputed that as a statement of fact this was incorrect. The Income-tax Officer revised the assessment of the assessee for 1946-47 and 1947-48 by his order dated 27th March 1954. An additional tax of Rs. 847-14-0 was demanded for 1946-47. The additional tax for 1947-48 that was demanded was Rs. 16,984-11-0., By 27th March 1954, the period of four years for which section 35 (1) of the Act provided, computed from the date of the original assessment 20th February 1950, had expired. The assessee Mohideen died on 17th April 1954. His son the petitioner, moved the Commissioner of Income-tax to revise the orders of the Income-tax Officer dated 27th March 1954 on the grounds, that the power to rectify the assessment of 1946-47 and 1947-48 under section 35 was barred by limitation, and that section 35 (5) could not apply to assessments completed before 1st April 1952. The petitioner also pointed out to the Commissioner that the Income-tax Officer had refused the petitioner's request to rectify the assessment for 1948-49, the original assessment for which also had been completed on 20th February 1950. The petitioner would have been entitled to some relief had that rectification been allowed, By his order dated 30th September 1955, the Commissioner rejected the petitioner's request to set aside the orders of the Income-tax Officer directing the rectification of the assessments for 1946-47 and 1947-48. The Commissioner, however, instructed the Income-tax Officer: "As a corollary, the relief prayed for the assessment for 1948-49 by incorporating the correct share income should be allowed and if necessary to that extent to revise the 1949-50 assessment: . The relevant portion of section 35 (1) ran: "The Income-tax Officer may, at any time within four years from the date of any assessment order . . . . . passed by him on his own motion rectify any mistake apparent from the record of . . . . . the assessment . . . . and shall within like period rectify any such mistake which has been brought to his notice by an assessee." Section 35 (5), which as we pointed out must, be deemed to have been part of the Act on 1st April 1952, ran: "Where in respect of any completed assessment of a partner in a firm it is found on the assessment or re-assessment of the firm or on any reduction or enhancement made in the income of the firm . . . . . that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, shall be deemed to be a rectification of 'a mistake apparent from the record within the meaning of this section, and the provisions of subsection (1) shall apply thereto accordingly, the period of four years referred to in that subsection being computed from the date of the final order passed in the case of the firm." The principal contention of the learned counsel for the assessee was that the provisions of section 35 (5) could not be applied to any assessment completed before 1st April 1952. He relied on Lakshminarayana Chetti v. Additional Income-tax Officer, Nellore ((1956)29 I T R 419). The defence of the learned counsel for the Department was on the following lines. The assessments for 1946-47 and 1947-48 did not become final when they were completed on 20th February 1950, because they could be reopened either under section 34 or under section 35 (1) of the Act within the time of four years allowed by either of these provisions. Before that period of four years expired section 35(5) of the Act came into force on lst April 1952. That extended the period of limitation to reopen and correct an assessment as the period of four years allowed by section 35 (5) could be computed not from 20th February 1950, the date of the original assessment, but from 31st October 1950, and 30th June 1951, the dates of the final orders in the case of the firms of which the assessee was a partner. In other words, the assessee had no vested right to any finality of the assessments completed on 20th February 1950, so long as the Department had the right to reopen an assessment under section 34 or under section 35 of the Act. As within that period a further right was conferred on the Department by section 35 (5), that right could be validly exercised within the time prescribed by section 35 (5). ' In Commissioner of Income-tax, Bombay and Aden v. Khemchand Ramdas ((1938) 6 I T R 414), their Lordships of the Privy Council, after referring to the terms of sections 34 and 35 of the Act observed at page 426. "In view of these express provisions of the Act it is in their Lordships' opinion quite impossible to suppose that the Income-tax Officer may in every kind of circumstance and after any lapse of time make fresh assessments or issue fresh notices of demand . . . . In their Lordships' opinion the provisions of the two sections are exhaustive, and prescribe the only circumstances in which and the only time in which such fresh assessments can be made and fresh notices of demand can be issued." Whether the assessee's case could have been reopened under section 34 of the Act does not arise for consideration in these proceedings for the simple reason that section 34 was never invoked. It was the power to rectify that was vested in the Income-tax Officer by section 35 of the Act that was involved. On 4th May 1953, when the Income-tax Officer invoked these powers and issued notices to the assessee section 35(5) had not yet been enacted, but when it was enacted on 24th May 1953, section 35 (5) was given effect from an anterior date 1st April 1952. Thus the Income-tax Officer had jurisdiction to exercise the powers vested in him by section 35 (1) as well as those vested in him by section ~5 (5) on 4th May 1953, and thereafter. There is one feature of this case to which we shall advert at this stage. The learned counsel for the Department was, in our opinion, right in his contention, that in the circumstances of this case, the assessment of Mohideen for 1946-47 and 1947-48 could have been rectified under section 35(1) itself, as it was really a case of rectifying a mistake apparent on the face of the record of assessment. The assessment orders dated 20th February 1950, specifically referred to the shares of the assessee in the losses sustained by the two firms of which he was a partner, Dinshaw do Co., and Palaniappa Chettiar. They were determined on a provisional basis. The determination was provisional till the assessments of Dinshaw & Co. and Palaniappa Chettiar could be completed. The assessment orders specifically recorded that the assessments of Dinshaw & Co. and Palaniappa' Chettiar had not been completed. That made the assessment orders in relation to Dinshaw & Co. and Palanipappa Chettiar part of the assessee's record of assessments. That the figures shown in the orders of assessee's assessment on 20th February, 1950, were incorrect, tested by another portion of the record of that assessment, the assessment of Dinshaw & Co. and Palaniappa Chettiar which, were completed only later, did not admit of any controversy. The assessment of Dinshaw & Co., was completed on 31st October 1950, and that of Palaniappa Chettiar on 30th June 1951. At any time thereafter when the mistake on the face of the assessee's record of assessment was established, the Income-tax Officer could have rectified the assessment of the assessee under section 35 (1). But that rectification could have been validly effected only if it had been ordered within four years from 20th February 1950, as that was all the period for which section 35 (1) provided. The rectification ordered on 27th March 1954, fell outside that period. That however, does not lead to the conclusion that every case of rectification necessitated by the fact, that an assessee's share of the profits or losses of a firm of which he was a partner had been either omitted or had been incorrectly assessed would be a rectification within the scope of section 35 (1). That in a given case, the assessee's for example, such a rectification could fall within section 35 (1) as well as under section 35 (5) does not mean that every such rectification could be dealt with under either subsection. Section 35 (1) is a general provision. Section 35 (5) is not only a special provision for rectification in the contingency specified; it provided for rectification on the basis of a legal fiction section 35 (5) directs that where the share of the partner in the profit or loss of the firm lies not been included in the assessment of the partner or if included is not correct, the inclusion of the share in the assessment or the correction thereof shall be deemed to be a rectification of a mistake apparent from the record within the meaning of section

35. Therefore, even if it is not a case of a mistake apparent from the record or on a face of the record of assessment, it is deemed to be such a mistake; and thereafter the provisions of section 35 (1) apply, subject, however, to the period of limitation prescribed by section 35 (1) being computed from the date specified in section 35 (5). The necessity to enact a legal fiction by which something which is not a mistake apparent on the face of the record is deemed to be such a mistake is wholly inconsistent with the view, that section 35 (5) was merely declaratory of the previous law on the subject as embodied in section 35 (1) and as implied in these provisions. We are in respectful agreement with the dictum of Subba Rao, C. J., in Lakshminarayana Chetti v. Additional Income-tax Officer, Nellore, that section 35 (5) was not declaratory of a pre-existing law. Section 35 (5) authorised a new class of mistakes to be rectified; what had not hitherto been a mistake apparent on the face of the record of assessment within the meaning of section 35 (1) became such a mistake by the operation of the legal fiction enacted by section 35 (5). That mistake also could thereafter be rectified in addition to the mistakes for the rectification of which provision had already been made in section 35 (1). The power to rectify what we can conveniently refer to at this stage as "fictional" mistakes was vested in the Income-tax Officer on 1st April 1952, There was no express provision in section 35 (5) to make it apply to assessments completed before 1st April 1952. Nor 'can we find anything in the language of section 35 (5) which could sustain a plea, that by necessary intendment section 35 (5) applied also to assessments completed before 1st April 1952. Neither in express terms nor by necessary intendment did section 35 (5) in any way amend the provisions of section 35 (1). Section 35 (1) was left intact even after the addition of section 35 (5) of the Act. Therefore the fact that on 1st April 1952, when section 35 (5) came into force, the period of limitation prescribed by section 35 (1) had not run out in the case of the assessee, could not enlarge the period of limitation prescribed by section 35 (1). It was independent of section 35 (1) that the powers under section 35 (5) could be invoked. That the period of limitation prescribed by section 34 had not expired in the case of the assessee on 1st January 1952, had even less relevancy. The assessee's case was not dealt with under section

34. It was not dealt with under section 35(1). It could not have been dealt with under section 35(1) after the expiry of four years reckoned from the date of the original assessment 20th February 1950. That left only section 35 (5), which, as we have pointed out, conferred a power independent of those for the exercise of which section 34 and section 35 (1) provided. Section 35 (5) could not apply, as the assessment in this case had. been completed long before 1st April 1952, when a fresh power to rectify assessments was conferred on the Income-tax Officer. As pointed out in Commissioner of Income-tax, Bombay and Aden v. Khemchand Ramdas the power to reopen an assessment must be sought within the limits of the specific statutory provisions. It may not be necessary to put it solely on the basis that the assessee has a vested right to claim finality of assessment. The question in our opinion, really is what was the statutory power that was exercised? What was the jurisdiction of the Income-tax Officer to re-open an assessment. That power and that jurisdiction must be based upon a specific statutory provision in the Act. In the case of the assessee the power given by section 35 (1) could not have been exercised on 27th March 1954. That given by section 35(5) should not have been exercised in relation to assessments completed before 1st April 1952. In our opinion, on 27th March 1954, the Income-tax Officer had no jurisdiction to rectify the assessments of the assessee for the assessment years 1946-47 and 1947-48. The learned counsel for the Department pointed out that the order of the Commissioner dated 30th September 1955, confirmed the rectification ordered by the Income-tax Officer with -reference to the assessment years 1946-47 and 1947-48, and further directed rectification of the assessment for 1948-49, under which the petitioner would be entitled to a considerable amount of relief. The petitioner in these proceedings attacked only the validity of the rectification order by the Income-tax Officer and confirmed by the Commissioner with reference to the assessments for the assessment years 1946-47 and 1947-48. The learned counsel for the Department was right in the contention, that the assessee should not be permitted by any order of ours to retain a benefit that accrues to him under the order dated 30th September 1955, while avoiding the liability imposed upon him by that order. The petition is allowed and the rule will be made absolute. The entire order of the Commissioner dated 30th September 1955, and the orders of the Income-tax Officer in relation to the assessment years 1946-47 and 1947-a8 will stand set aside. No costs. Petition allowed.