1968 PLP 364 (PTD)

It must be noticed that under this amendment time‑limit started from the date of the final order passed in the case of the firm though the rectification is to be made in the assessment of the partners of the firm. By section 19 of "the Finance Act, 1956, subsection (10) (among others) was added as from April 1, 1956. That sub section reads as follows: "(10) Where, in any of the assessments for the years beginning on the 1st day of April, of the years 1948 to 1955 inclusive, a rebate of income‑tax was allowed to a company on a part of its total income under clause (i) of the proviso to Paragraph B of Part I of the relevant Schedules to the Finance Acts specifying the rates of tax for the relevant year, and subsequently the amount on which the rebate of income‑tax was allowed as aforesaid is availed of by the company, wholly or, partly, for declaring dividends in any year, the amount or that, part of the amount availed of as aforesaid, as the case may be, shall; by reason of the rebate of income‑tax allowed to the company and to the extent to which it has not actually been subject to an additional income‑tax in accordance with the provisions of clause (ii) of the proviso in Paragraph B of Part I of the Schedules to the Finance Acts above referred to, be deemed to have been made the subject of incorrect relief under this Act, and the Income‑tax Officer shall recompute the tax payable by the company by reducing the rebate originally allowed, as if the recomputation is a rectification of a mistake apparent from the record within the meaning of this section and the provisions of subsection (1) shall apply accordingly, the period of four years specified therein being reckoned from the end of the financial year in which the amount on which rebate of income‑tax was allowed as aforesaid wag availed of by the company wholly or partly for declaring, dividends." It will be noticed that the time‑limit under this subsection was to commence from the end of the financial year in which the dividends were declared from profits on which the rebate was earned earlier. The question in this case is whether subsection (10) can apply to an assessment which had been made before sub section (10) came into force. The contention of the assessee company is that subsection (10) was given retrospectivity only up to April 1, 1956, and the words of that subsection should be interpreted in such a way as to give the subsection no greater retrospectivity. According to the assessee company, the assessment for the year 1953‑54 had become final on April 17, 1954, that is to say, before the 1st day of April 1956, from which date subsection (10) was made to operate. The provisions of section 35 (10), according to the assessee company, could only be utilised if dividends were declared after April 1, 1956, but not if the declaration took place earlier. Reliance was placed upon the decision of this court in Income‑tax Officer v. Habibullah and reference was also made to another decision following Habibullah's case, Second Additional Income‑tax Officer v. Atmala Nagaraj. Our learned brother Das, J. following. Habibullah's case has held that the contention of the assessee company is well founded and has expressed the opinion that Atmala Nagaraj's case may need reconsideration. He has, therefore, ordered the reversal of the judgment and order of the High Court. In our judgment, and we say it with profound respect, this appeal must be dismissed. We are also of the opinion that both the above cases (which are of the same Divisional Bench) may have to be reconsidered hereafter. Atmala Nagaraj's case followed Habibullah's case. The difference in the facts of the two cases was only in one respect and that was not sufficient to take at mala Nagaraj's case out of the ratio of the earlier decision. We shall deal with these two cases later. The Income‑tax Act imposes a charge of tax for a year at a time and that year is the year of assessment. The charge is in respect of a previous year which is commonly known as the year of account. The rate at which the tax is to be charged is enacted by an annual Finance Act for each' assessment year. The assessment year is the financial year. From the nature of things an amendment of the Income‑tax Act, made in the middle of the assessment year, if made to operate from the beginning of the assessment year, operates on incomes which had been earned before. Since an amendment cannot be allowed to operate from the mid‑term, each such amendment is made to comprise a whole assessment year whether it be the assessment year then running or an earlier or a later assessment year. Amendments are thus given retrospective operation from the first day of April in the same or a preceding, or prospective operation for a future assessment year. Ordinarily, the law, as it stands on the 1st of April in any assessment year, applies to assessments in that year but the law may expressly or by necessary implication give itself a greater retrospective operation. The date on which the amendment comes into force is the date of the commencement of the amendment. It is read as amended from that date. Under ordinary circumstances, an Act does not have retrospective operation on substantial rights which have become fixed before the date of the commencement of the Act. But this rule is not unalterable. The Legislature may affect substantial rights by enacting laws which are expressly retrospective or by using language which has that necessary result. And this language may give an enactment more retrospectivity than what the commencement clause gives to any of its provisions. When this happens the provisions thus made retrospective, expressly or by necessary intendment, operate from a date earlier than the date of commencement and affect rights which, but for such operation, would have continued undisturbed. It must be remembered that if the Income‑tax Act prescribes a period during which the tax due in any particular assessment year maybe assessed, than on the expiry of that period the department cannot make, an assessment. Where no period is prescribed the assessment can be completed at any time but once completed it is final. Once a final assessment has been made, it can only be reopened to rectify a mistake apparent from the record (section 35) or to reassess where there has been an escapement of assessment of income for one reason or another (section 34). Both these sections which enable reopening of back assessments provide their own periods of time for action but all these periods of time, whether for the first assessment or for rectification, or for reassessment, merely create a liar when that time passed against the machinery set up by the Income‑tax Act for the assessment and levy of the tax. They do not create an exemption in favour of the assessee or grant an absolution on the expiry of the period. The liability is not enforceable but the tax may again become exigible if the bar is removed and the tax‑payer is brought within the jurisdiction of the said machinery by reason of a new power. This is, of course, subject to the condition that the law must say that such is the jurisdiction, either expressly or by clear implication. If the language of the law has that clear meaning, it must be given that effect and where the language expressly so declares or clearly implies it, the retrospective operation is not controlled by the commencement clause. The amendment, with which we are concerned; was made by the Finance Act, 1956 (18 of 1956). By section 2, it dealt with the year beginning on the 1st day of April 1956, and fixed the rates of taxes for the assessment year commencing on that date. It also amended the Income‑tax Act by sections 3 to

35. Section 28 then prescribed the dates of commencement of these sections. It read : "

28. Commencements of amendments to Act II of 1922. The amendments made in the Income‑tax Act by section 4 and clause (b) of section 15 shall be deemed to have come into force on the 1st day of April 1955, and the amendments made by sections 3 to 27 inclusive shall come into force on the 1st day of April 1956." Subsection (10) was introduced into section 35 of the Income‑tax Act by section 19 of this Act. If there was nothing more in the language of the subsection to give it operation from an earlier date it would have operated only from 1st April 1956, but the language of the subsection gives it additional retrospec tivity and says so in such clear and unambiguous language as to leave no doubt. There is no room for the application of Lord Justice Bowen's dictum in Reid v. Reid ((1886) 31 Ch. D 402, 409) that even in construing a section which is to a certain extent retrospective, the maxim that statutes are prospective only, ought to be borne in mind as applicable whenever the line is reached at which the words of the section cease to be plain. The topic of section 35 is rectification of mistakes apparent from the record. Subsection (10) introduced a new basis for rectification in section 35 which already prescribed a period of four years from the order of assessment and the new subsection enabled rectification to be made in new circumstances and within a new time‑limit. Those circumstances, when analysed, furnish the key to the retrospectivity of the section. We shall begin by quoting only the material portion of that subsection, which has been quoted in full earlier: " . . where, in any of the assessments for the years beginning on the 1st day of April, of the years 1944 to 1955 inclusive, a rebate of income‑tax was allowed . . . and subsequently the amount on which the rebate of income‑tax was allowed . . . is availed of . . . for declaring dividends in any year . . . the amount . . . shall be deemed to have been made the subject of incorrect relief . . . and the Income‑tax Officer shall recompute the tax . . . as if the recomputation is a rectification of a mistake apparent from the record within the meaning of this section and. the provisions of subsection (1) shall apply accordingly,, the period of four years . . . being reckoned from the end of the financial year in which the amount on which rebate of income‑tax was allowed.'. . was availed of . . . for declaring dividends." The purport of this new subsection was the recall of rebate which had been allowed in any of the assessments for the years April 1, 1948, to March 31, 1956, under certain circumstances. At the very start, the subsection takes one to assessment years to which section 28 which prescribed the commen cement as April 1, 1956, did not take one to. We do not accept the argument of the learned counsel for the assessee company that the mention of the years is merely a repetition of a historical fact for ready reference, The words "in any of the assessments for the years etc." show in respect of which assessments rectification would be possible. "The years are mentioned individually by using the word "any". The law speaking in 1956, was thus speaking of all the assessment years individually going back to 1st April, 1948. The language‑was clearly one of retrospectivity and the suggestion that there is no intent behind these words and that they merely refer to a historical fact is not acceptable to us. This conclusion is further fortified by the words: "and subsequently the amount . . . . . is availed of . . . . . for declaring dividends in any year . . . . ." Having mentioned the years individually in the opening part, an event is mentioned which is subsequent, namely, declaration of dividend from an amount on which rebate was allowed. "Subsequently" here obviously means subsequent to "any of the assessments for the years beginning on the 1st day of April of the years 1948 to 1955 inclusive", not necessarily subsequent to the amending Act. The declaration of dividends must be after the grant of‑the rebate. That is the only condition and it does not import the date of commencement of the subsection in any way. Then comes the operative part and it is this. If in the earlier assessment in any of the years mentioned a rebate was allowed and subsequently in any year there was a declaration of dividend utilising the amount on which the rebate was given, the amount so utilised should be deemed to be the subject of incorrect relief. This fiction comes into force from April 1, 1956, but it is not stated that the circumstances in which it comes into being should also be after April 1, 1956. The subsection no doubt is to be used from April 1, 1956, but it is to be used retrospectively to recall rebate on amounts which the law deems to have been the subject of an incorrect relief in the past. The recalling of the rebate is after the enactment of subsection (10) but the conditions for the exercise of the power may be before or after the commence ment of the subsection. The only curb on the exercise of the power is that the Income‑tax Officer may go back a period of four years reckoned from the end of the financial year in which the declaration of dividend was made to the date when the action is taken. In the present case this is so. The assessee company declared dividends in the calendar year 1952. The assessment year was April 1, 1953, to March 31, 1954. The letter written on March 18, 1958; asking the assessee company to show cause was within the four years reckoned from the end of the financial year (March 31, 1954) in which the amount on which rebate of income‑tax was availed of for declaring dividends. It complied with the letter of the subsection. Since the power commenced on April 1, 1956, the utmost reach of the Income‑tax Officer would be the end of the assessment year 1952. Any declaration of dividend after 1st day of April 1952, out of accumulated profits of any of the years in which rebate was earned would be within the time for the recall of the rebate. But a declaration prior to April 1, 1952, would be beyond the power of the' Income‑tax Officer to recall. This meaning is the only meaning which the plain words of the section can bear. Any other meaning might make subsection (10) unworkable because no company, with the knowledge that rebate would be recalled, would like to declare dividends after April 1, 1956, out of amounts on which rebate was earned. If the other meaning was attributed, subsection (10) might well be a dead letter. The subsection was obviously the result of noting how rebates were earned and later were 'being utilized to fill the pockets of the shareholders. The amendment met this situation and did it in very clear terms. It remains to consider the decisions of this Court in Habibullah's case and Atmala Nagaraj's case. In those two cases this Court was called upon to interpret subsection (5) quoted above which was introduced as from April 1, 1952, by the Indian Income‑tax (Amendment) Act, 1953. In both the cases there was a final assessment of the incomes of partners in regis tered firms. Later the assessment of the registered firms took place and it was found that the share of income of the partners was larger than what had been assessed. Under section 36(1), as it stood before subsection (5) was introduced, rectification could be made in respect of a mistake apparent from the record and the records of the firms could not be read with those of the partners to find an error in the latter. There was thus an impasse. It was ruled by the Privy Council in Commissioner of income‑tax v. Khemchand Ramdas ((1938) 6 I T R 414, 424 P C): " . . . . When once a final assessment is arrived at, it cannot in their Lordships' opinion be reopened except in the circumstances detailed in sections 34 and 35 of the Act . . . . . and within the time limited by those sections." Therefore, unless the original section 35 allowed such rectification there was no help. Often the firm's final assessment dragged on for years and by the time that assessment was done the time limited by subsection (1) had already run out. Parlia ment, therefore, stepped in with an amendment which was to commence on April 1, 1952. Two matters were provided by subsection (5). Firstly, the result of the assessment of the firm showing that the partners' income was not properly included in their own assessments, was to be deemed to disclose an error in the record of the partners' assessment and secondly, the period of four years instead of being computed from the order of assessment made against the partners as under subsection (1) was to be computed from the date of the final order passed in the case of the firm. No doubt this power could be exercised from April 1, 1952, but the question that had to be considered was whether it could be exercised only to reopen the assessment of, partners of a firm if, and only if, the order in the assessment of the firm was passed after the amendment came into force. In dealing with the matter in Habibullah's case this court referred to the finality which attaches to a final assessment as stated by the Privy Council. This Court then referred to the date of the commencement of subsection (5) which was fixed retrospectively as April 1, 1952, and held that the subsection could not be used to reopen assessment which had become final before the com mencement of the new subsection, contrasting its language with that of subsection (6) which was simultaneously introduced. In Habibullah's case the dates were: Partners' assessment for 1946‑47 on 22‑2‑1950 do do. 1947‑48 on do. Registered firms' assessment for 1946‑47 on 31‑10‑1950 do. do. 1947‑48 on 30‑6‑1951 subsection (5) to section 35 introduced from 1‑4‑1952 Order under section 35 (5) on 27‑3‑1954 If subsection (5) could be used in this case it is plain that the four years period had not passed between October 31, 1950 (which was the earlier assessment) and March 27, 1954, when the rectification was made. No doubt, the two assessments of the firm were also before April 1, 1952, but the subsection has nowhere said that the power was only to be exercised if the assessment of the firm was after that date. Such a meaning is also difficult to imply. Under a fiction created after April 1, 1952, the assessment of the partners disclosed a mistake and if the fiction and the rest of the subsection were to be given their full and logical effect the assessment of the partners could be reopened and rectified. But it was held otherwise by this Court. The main reason was that the partners' assessments had become final before April 1, 1952, that under the lacy, as it then stood, there was no error in their record, and subsection (5) having been enacted retrospectively from April 1, 1952, could not be given more retrospectivity. That the firms' assessment was also before April 1, 1952, was not given as a reason and in any event it was not very relevant. It neither added to nor detracted from the finality (such as it was on February 22, 1952), on the partners' assessment. The law obviously mentioned the final order in the firm's assessment as the starting point in view of the length of time the firms' assessments take to reach their own finality. But there was nothing to show that this new terminus a quo must be after April 1, 1952, before subsection (5) could be used. The words of the subsection were entirely indifferent to this aspect. In Atamala Nagaraj's case the assessment of the partners (January 22, 1952), was also completed before April 1, 1952, and had become final, subject, however, to sections 34 and

35. No doubt, the assess ment of the firm was completed after April 1, 1952, but this distinction made no difference to the finality such as had been gained on January 22, 1952. We do not naturally express a final opinion on subsection (5). We must leave that to a future case. We must, however, say that the two earlier cases may have to be reconsidered on some future occasion. When the occasion comes the questions to ask would be:

1. Did finality attach in Habibullah's case to the partners' assessment under the law as it then stood from February 22, 1950 (partners' assessment) or from October 31, 1950, and June 30, 1951 (the firm's assessment)?

2. Was there no finality insofar as the partner's assessment was concerned in Atmala Nagaraj's case between January 22, 1952 (partner's assessment) and April 1, 1950 (the commencement of subsection (5))?

3. Was the finality of the partners' assessment, if any, controlled in the one case by the fact that the assessment of the firm was before April 1, 1952, and in the other by the fact that the assessment of the firm was after April 1, 1952? We have detailed these questions because they highlight the only point of difference between the two cases. We express no opinion on these questions. In view of what we have said on the interpretation of section 35 (10) we are of opinion that the judgment of the High Court was right. We would, therefore, dismiss this appeal with costs. BY THE COURT: In accordance with, the opinion of the majority, this appeal is dismissed with costs. Appeal dismissed.