1960 PLP 253 (PTD)

AMIN AHMAD, C. J.‑These two References, being Reference Cases Nos. 11 and 12 of 1959, under subsection (1) of section 66 of the Income‑tax Act (which we shall hereinafter call the Act only) are at the instance of the Commissioner of Income‑tax, East Pakistan.

2. As the parties are the same in both the cases, by consent of the learned Advocates, we have heard them analogously and our one order will govern both the cases.

3. The assessee in these two cases is Messrs Radhashyam Agaxwala, the assessment year being 1951‑

52. Two separate cases have been filed as Messrs Radhashyam Agarwala claimed that he had separate business at Narayanganj and Khulna. The points of law which have been referred to us for determination in Reference Cases Nos. 11 and 12 are:‑-- "In Reference Case No. 11 of 1958:‑Whether the notification, dated 24th August 1951, issued by the Central Board of Revenue was legally operative in making the assessment for the year 1951‑52, on all jute cases which had not carried on any such business in East Bengal before the 1st of October 1949 ? "In Reference Case No. 12 of 1958 :‑If the notification of the Central Board of Revenue, dated 24th August 1951, was legally operative for all new jute cases for the assessment year 1951‑52, and whether there was any justification for setting aside the order under section 26‑A ?" The notification referred to in the above quotations runs as follows: "In exercise of the powers conferred by clause (b) of clause (11) section 2 of the Income‑tax Act, 1922 (XI of 1922), the Central Board of Revenue is pleased, in the case of all assessees who carried on business in jute during the season 1950‑51, in East Bengal, not having carried on any such business in that Province before the 1st October 1949, to determine the previous year for the purpose of their assessment for 1951‑52, in respect of that business to be the period of twelve months ending on the 30th June 1951". The Income‑tax Officer not only held that the business carried on under the name and style of Messrs Radhashyam Agarwala at Narayanganj and Khulna was the same but also, on the basis of the above notification, took the year ending on the 30th of June 1951, as the previous year for the purpose of assessment for 1951‑

52. Against this assessment, an appeal was taken to the Appellate Assistant Commissioner and the Appellate Assistant Commissioner agreeing with the Income‑tax Officer upheld his order of assessment. Thereupon the assessee preferred an appeal to the Income‑tax Appellate Tribunal, Dacca. The learned Members of the Tribunal, after citing a number of cases including the judgment of Kayani, J., (as his Lordship then was), and Shabir Ahmad, J., in Civil Reference No. 8 of 1957, held that the notifica tion could not be given retrospective effect and set aside the order of the income‑tax authorities below them. Aggrieved by this, the Commissioner of Income‑tax made an application under section 66 of the Act before the Tribunal to make the present References.

4. Mr. Mesbahuddin, the learned Advocate for the Commis sioner of Income‑tax, contends that the Tribunal fell into error in holding that the notification could not be given effect to in contravention of the `previous year' as defined and stood until the notification, dated the 24th of August 1951, that is to say, the income‑tax authorities could not rely on the notification, dated the 24th of August 1951, and make an assessment for the year 1951‑52, on the income of the assessee for the year ending on the 30th of June 1951, instead of that of the year ending on the 31st of March 1951. It may be stated here that in response to a notice under section 34 of the Act the return that was filed by the assessee is dated the 5th of August 1954, and under protest it was filed in respect of the income accruing during the Rathajatra year 2007‑2008 and he claimed actual assessment for 1952‑53, that is, according to the assessee the previous year being the recognised Rathaiatra year 2007‑2008 the normal actual year for assessment should be 1952‑53, as in the case of all old jute business, and not the year 1951‑52, as per notification on which the income‑tax authorities have relied.

5. One branch of the argument of the learned Advocate for the applicant is that according to clause (b) of subsection (11) (i) of section 2 of the Act, the Central Board of Revenue is competent to alter the normal previous year and this the Board has done by the above notification. The learned Advocate has relied on clauses (b) and (c) of subsection (11) (i) of section 2 of the Act which are as follows; "(ii) `previous year' means‑ (i) in respect of any separate source of income, profits and gains‑ (b) in the case of any person, business or company or class of person, business or company such period as may be deter mined by the Central Board of Revenue or by such authority as the Board may authorise in this behalf ; or (c) where a business, profession or vocation has been newly set up in the financial year preceding the year for which assess ment is to be made, the period from the date of the setting up of the business or profession or vocation to the 31st day of March next following or to the last day of the period deter mined under sub‑clause (b), or, if the accounts of the assessee are made up in respect of a period not exceeding twelve months from the date of the setting up of the business, profession or vocation and the case is not one for which a period has been determined under sub‑clause (b), then, at the option of the assessee, the period from the date of the setting up of the business, profession or vocation to the date to which his accounts have been so made up; Provided that when the date to which the accounts have been so made up does not fall between the setting up of the business, profession or vocation and the next following 31st day of March inclusive, it shall be deemed that there is no previous year for the said assessment year and the previous year which would otherwise have been determined according to the option exercised by the assessee shall be deemed to be the previous year for the next succeeding assessment year."

6. Another branch of his argument is that the Act governs all cases of assessment and it provides delegated legislation by the Central Board of Revenue ; the Central Board, like the Legislature, is supreme in respect of all the enactments made by it and, there fore, it can even make an enactment which extends backwards by its own clear‑ language and instances of such legislation will be found in some cases.

7. The third branch of his argument is: what is enacted by notification is only procedural and the income‑tax authorities are bound to enforce them as soon as they come into force, and, in the present case, although the notification alters the normal previous year, the Income‑tax Officer had to give effect to it before he made the assessment.

8. The learned Advocate for the Commissioner of Income‑tax develops his argument as follows: The Notification is in conson ance with the various provisions of subsection (11) (i) of section 2 of the Act as contained in the various clauses therein, and although `previous year' is defined in subsection (11) (i), if one glances through the provisions in all the clauses therein, it will be noticed that various alternative meanings can be given to `previous year' according to the conditions and circumstances expressly mentioned in clause (i) of that subsection. Clauses (b) and (c) of sub section (11) (i) are enabling provisions by means of which the Central Board may vary or alter the period of `previous year', as has been done in the present case, and what has been altered in this case is that only in case of certain class of jute‑dealers who started carrying on business after the 1st of October 1949, the assessment year in respect of their income of jute business for a period of twelve months ending on the 30th of June 1951, will be the year 1951‑

52. If clauses (b) and‑(c) are read together, it will appear that such an amending enactment for the purpose of assessment by the Central Board of Revenue is provided. Mr. Mesbahuddin also points out that the notification is only a piece of delegated legislation and, even if it does affect any vested right, which, according to him, it does not, the Central Board is quite competent to alter the period of `previous year' and make it applicable to a period either prior or subsequent to that of the previous normal year.

9. In support of his contention that the law that will govern the assessment is the law which is in force for the year of assess ment and not the law which was in force during the year the income of which is sought to be assessed, the case of Commissioner of Income‑tax, Bombay v. Sind Hindu Provident Funds Society ((1940) 8 I T R 467) is relied upon by the learned Advocate for the applicant. The case of Chotturam and others v. Commissioner of Income‑tax, Bihar ((1947) 15 T R 302) is relied upon by him to support the proposition that the power to legislate may be delegated by the Legislature and no one can claim vested right against the legislation or delegated legislation, whether procedural or substantive or even if it is applied retrospectively.

10. As to retrospective operation or interpretation whether particular provisions are to be applied retrospectively, the learned Advocate has strongly relied on the case of Income‑tax Officer, Companies District I, Calcutta, and another v. Calcutta Discount Co. (A I R 1953 Cal. 721) (judgment of Chakravarti, C. J. and Sarkar, J). The learned Advocate has particularly referred to the following passages in the said case; "As already stated, amendments of the Income‑tax Act were made by sections 2 to 12 of Act XLVIII of 19.18. That Act itself came into force on 8‑9‑1948, but by section 1 (2), it prescribed the dates on which certain of its provisions and certain amendments made to the Income‑tax Act were to come into force. Section 1 (2) is in the following terms `Sections 3 to 12 shall be deemed to have come into force on 30‑3‑1948, and the amendment made in the Income‑tax Act, 1922 (XI of 1922) by section 2 shall be deemed to be operative so as to apply in relation to all assessments subsequent to the assessment for the year ending on 31‑3‑1948' The learned Judge has observed that; "the amendment is expressly made retrospective so far as section 34 is concerned from 30‑3‑1948, but that really is not the retrospective operation of section 34, but of the amending Act which, though it became law only on 8‑9‑1948, operates, so far as it substituted a new section for the old section 34, with effect from 30‑3‑1948. The effect of section 8 of the amending Act so operating with respect. to section 34 was that is placed the section on the statute book as on 30‑3‑1948, and made it a part of the Income‑tax Act on and from that date. But what was the effect of such introduction of the new section 34 on the Income‑tax Act itself ? The effect was that the Income‑tax Act, speaking on and from 30‑3‑1948, with the new section as a part of it, began to say in the words of the section itself, and, therefore, expressly by its own words, that in cases coming under clause (1) (a) of the section, the Income‑tax Officer would be entitled to issue a notice within eight years from the end of any assessment year in respect of which pro ceedings or further proceedings seemed to be called for. One has only to read the Act, standing so amended on 30‑3‑1948, and one finds at once a clear provision that all assessment years ending within eight years from that date, are covered by it, as also all assessment years ending within eight years from subsequent dates. It is immaterial that some of them may be years ended before 30‑3‑1948. The question is not one of retrospective operation at all but a question of what the section says and how far the section, having come into force on 30‑3‑1948, extends by its own words. Had the section, merely created a right in. favour of the Income‑tax Officer to issue a notice in respect of escaped or under assessed income and not included a provision as to the period upto which computed from the end of the assessment year concerned the right could be exercised, a question might conceivably arise as to whether it was intended to be retrospective in operation, but, in view of its clear terms, the section gives rise to no such question. The plain effect of the substitution of the new section 34 with effect from 30‑3‑1948, is that from that date the Income-tax Act is to be read as including the new section as a part thereof and, if it is to be so read, the further effect of the express language of the section is that so far as cases coming within clause (a) of subsection (1) are concerned, all assessment years ending within eight years from 30‑3‑1948 and from sub‑sequent dates are within its purview and it will apply to them, provided the notice contemplated is given within such eight years. What is not within the purview of the section is an assessment year which ended before eight years from 30‑3‑1948. All the three assessment years in question in the present case ended within eight years from 30‑3‑1948 and also within eight years from the date of the notices and accordingly the proceedings taken are authorised by the section and are valid."

11. Mr. Asrarul Hussain, the learned Counsel for the assessee, has strenuously argued that, on a reading of the various pro visions in the different clauses of subsection (11) (i) of section 2 of the Act, it will be found that, although the Central Board is competent to alter the period of ` previous years ', this power is subject to the provisions contained in the other clauses of clause (i) of the said subsection. The learned Counsel has pointed out to us the option given to the assessee in certain cases, as provided in clauses (a) and (c) of that sub section (11) (i). We have also been taken through the provisions of section 3 of the Act which relates to the charge of income‑tax.

12. Clauses (b) and (c) of subsection (11) (i) of section 2 of the Act have already been set out. Clause (a) of clause (i) of that subsection and section 3 of the Act are as follows; " Section 2 (11) (i) (a) previous year' means in respect of any separate source of income, profits and gains the twelve months ending on the 31st day of March next preceding the year for which the assessment is to be made, or, if the accounts of the assessee have been made up to a date within the said twelve months in respect of a year ending on any date other than the said 31st day of March, then at the option of the assessee, the year ending on the date to which his accounts have been so made up Provided that where in respect of a particular source of income, profits and gains an assessee has once been assessed, or where in respect of a business, profession or vocation newly set up an assessee has exercised his option under sub‑clause (c), he shall not in respect of that source or, as the case may be, business, profession or vocation exercise the option given by this sub‑clause so as to vary the meaning of the expression `previous year' as then applicable to him except with the consent of the Income‑tax Officer and upon such con ditions as the Income‑tax Officer may think fit to impose." Section 3.‑Where any Act of Parliament enacts that Income-tax shall be charged for any year at any rate or rates tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local autho rity, and every firm and other association of persons or the partners of the firm or members of the association indivi dually."

13. The argument of the learned Counsel for the respon dent seems to be on the lines of the reasonings of the Tribunal contained in their judgments disposing of the appeals. In taking us through clause (c) of subsection (11) (i) of section 2 of the Act, Mr. Hussain has laid great stress on the words "has been determined" and, relying on these words, he claims that the intention of the Legislature, on the correct interpretation of the said clause (c), is that, on the date of the assessment, the assessee and the assessing authorities will go by the normal year which has already been determined, particularly when there are no words like "to be determined" or the words "may be determined" in place of the words "has been determined". In this connection it is also pointed out that if the notification is given retrospective effect, it will lead to complications inasmuch as in those cases where assessment has been completed before the assessment of this assessee, there will be applica tion of one law of assessment and one kind of assessment and in cases of other assessees application of another law and another kind of assessment and this the Legislature could never have intended. In any view, it is urged, even if it is held that the Central Board is competent to pass any enactment of the nature it has done it may only be applied prospectively and cannot have retrospective operation, as has been held in a number of cases. The cases relied upon by the Tribunal are In re Mishrimal Gulabchand (l), Civil Reference No. 8 of 1947, decided' by Kayani and Shabir Ahmed, JJ., on the 12th of October 1955, (Jagjit Sugar Mills Co., Ltd. v. Commissioner of Income‑tax, a certified copy of judgment having been placed before us). Scindia Steam Navigation Co., Ltd. v. Commissioner of Income-tax, Bombay City (A I R 1955 Born. 230) and the case of Maharajah of Pithapuram v. Commissioner of Income‑tax, Madras ((1945) 13 I T R 221). The learned counsel has also relied on the above cases and particularly on the case of In re Mishrimal Gulabchand, which refers to almost all the cases relied upon by the Tribunal. In the latter case of In re Mishrimal Gulabchand, the first proviso to subsection (1) of section 24 of the Act did not come into force till the 12th of April 1944, and, therefore, it was held that it did not apply to assessments made for the year 1944‑

45. Besides the cases cited by the Tribunal in their judgment, the learned counsel has relied on the case of Commissioner of income‑tax, Madhya Pradesh v. C. P. Syndicate, Nagpur ((1952) 22 I T R 493) which refers to the above case of Mishrimal Gulabchand and it was held in that case also that the first proviso to section 24 (1) of the Act, which was added on the 2nd of April 1944, was not applicable to the assessment year 1944‑45.

14. The extract from the judgment of Civil Reference case No. 8 of 1957 (Jagjit Sugar Mills Co., Ltd. v. Commissioner of income‑tax), as quoted by the Tribunal, is to the following effect: "Any amendment carried out in the provisions of that Act after the 1st April would not affect the year of assess ment", and, after this quotation, their Lordships of the Lahore High Court refer to the cases of Scindia Steam Navigation Co. v. Commissioner of Income‑tax Bombay City and Maharajah of Pithapuram v. Commissioner of Income‑tax, Madras, the learned counsel has taken us through each and every word of clause (c) and the proviso to subsection (11) (i) (c) of section 2 of the Act and he submits that clause (c) is the only clause which is relevant for the purpose of the disposal of these Reference Cases.

15. We have no doubt that clause (c) and clause (b) are the only two clauses of subsection (11) (i) of section 2 which govern the present cases. But the question is whether, in view of these provision, it can be ‑claimed that the notification is retrospective and, therefore, incompetent, or, even if it is valid, it cannot be applied retrospectively.

16. It will be noticed that clause (c) of subsection (11) (i) of section 2 of the Act refers to new business, as in the present case, i.e., new entrants into jute business.

17. In the Act of 1886. `previous year' was not defined, but section 11 of that Act provided only in case of joint stock companies a definition like that of clause (a). In the Act of 1918, the definition was similar to that in clause (a) of the present Act. Clause (b) was inserted in order to cover exceptional cases in which the assessee or a business firm follows a year which is slightly over or under twelve months and follows a year which ends a few days or weeks after the financial year. The amending Act of 1935 clarified the following : (a) if the option of the `previous year' has once been exercised, including the option for a newly‑set‑up business or profession, he cannot change it without the permission of the Income‑tax Officer ; (b) in the case of a newly‑set‑up business accounts have to be made up for a period not exceeding twelve months from the date of starting the business to enable the assessee to exercise the option ; (c) if such accounts have been made up to date falling within the assessment year, in that case the `previous year' would become the previous year for the next succeeding assessment year ; and (d) the `previous year' adopted by a firm is the previous year in the case of its partners as regards shares of income in the firm. For the first time in 1939, provision for separate `previous year' for separate sources of income was made by an amending Act to avoid double assessment. In respect of clause (c) of subsection (11) (i) of section 2 of the Act, the following may be quoted from the report of the Income‑tax Enquiry Committee :‑-- "A difficulty arises in case of a newly‑set‑up business the accounts of which are made up to a date other than 31st March, Clause (11) (a) of section 2 of the Act provides that the `previous year' shall be the 12 months ending on the 31st March preceding the year for which the assessment is to be made, or, at the option of the assessee, the year ending on some other date within the said 12 months if accounts were made up for a period of a year on that date, and does not provide specifically for the case of a new business. In some circles, it appears to be the practice in the case of a new business to take such proportion of the profits shown by the first account as corresponds to the period from the date of the setting up of the business to the following 31st March for the purpose of the first assessment of the business, again taking a full 12 months' proportion of the profits shown by that account for the second assessment. This may involve the assessment twice of the same profits. For example, a business is commenced on 1st January 1935, and the profits for its year's trading to 31st December 1935, amount to Rs. 10,

000. There would be an assessment for the 3 months to 31st March 1935, of Rs. 2,500 and an assess ment for the 12 months to 31st December 1935, of Rs. 10,000 a double assessment of Rs. 2,500 for which no relief is pro vided".

18. The amendments were made, as the history shows, by stages and section 2 of the Act was amended to the present form in 1953. The amended clause (c) ensures that the previous year cannot be more than twelve months. AS the definition stood before, 1953, there was a lacuna in it which enabled the profits of a broken period to escape assessment in certain cases of new15‑set‑up business.

19. I have referred to the history in order to appreciate the wording of clause (c) of subsection (11) (i) of section 2 of the Act. Clause (c), if analysed, comes to this that when a business has been set up for the first time in a financial year prior to be year for which assessment is made the assessment year may be the period commencing from the d ate of setting up of the business to the 31st of March next ; alternatively, it may be from the date of setting up of a business to the last date of a period determined by the Central Board under clause (b) or, if accounts of the assessee are made up for a period not ex ceeding twelve months, from the date of OR establishment of the business and no last‑date has been determined by the Central Board under clause (b), then the assessee has the option of being assessed on his accounts for the period from the date of setting up of his business up to the date to which his accounts have been so made up, that is to say, the option is given to the assessee only in the last case and not in the first two cases. The proviso to clause (c) gives a further option in. case of accounts so made up to the effect that where the made up to which the accounts are made up by the assessee do not fall between the date of setting up of the business and the next following 31st March, it will be deemed as if there is no previous year for the said assessment year and the previous year which would otherwise have been determined according to the option exercised by the assessee will be deemed to be the previous year for the next succeeding assessment year.

20. It seems to us that the legal position has not been properly appreciated and the whole misconception is due to the lack of distinguishing a piece of legislation which contains general provisions of law and a piece of legislation which contains express and explicit provisions not only as what the law is but also the category or class to whom it will apply and for what period it is to operate.

21. The cases cited by the Tribunal, as also by the learned counsel, undoubtedly support the proposition that no Jaw or statutory rule should be given a retrospective effect unless the enactment says so in so many words or by implication. But no casehas been cited by the learned counsel to controvert the pro position of law that a Legislature can legislate or delegate to a competent authority to pass an enactment altering a normal previous assessment year in case of certain newly‑set‑up business and providing an assessment year different from the normal financial year.

22. In our opinion, there is substance in the contention of the learned Advocate for the Commissioner of Income‑tax that the present notification is one which is clearly directed against the new jute business that was set up and, both in their interest and in the interest of the revenue of Government, the previous year has been prescribed as one of twelve months ending on the 30th of June 1951, and this was advisedly done, although the year may be more than twelve months after the 1st of October, 1949, to the 30th of June 1951. That the latter period may be one of more than 12 months is no answer to this piece of legislation, for, as we have already indicated, clause (c) provides for a new business which does not always earn as soon as it is set up and they have sizeable income only after certain period and, therefore, in their case, the Legislature has given the delegated authority to the Central Board to pass such legislation as would suit their peculiar condition.

23. The question of retrospective operation of the Income-tax Act itself does not really arise and the question is whether the notification which contains express directions is to be taken as part of the Act after it has come into force and the authorities have to give effect to it in the manner provided as soon as it comes into force for the purposes of assessment. If the notification were not in the form as it is, that is to say, if it did not say that for the purposes of assessment the previous year will be the year of twelve months ending on the 30th of June 1951, it could have been very well urged that it should be construed as having prospective, and not retrospective, operation. But, on a reading of the notification, it will be found that in so many words it is stated that the period of twelve months ending on the 30th of June is to be the previous year for the purposes of making the assessment in cases of parties who came into the jute business after the 1st of October 1949.

24. We respectfully agree with the view taken by Chakraborti, C. J., and Sarkar, J., in the case of Income‑tax Officer, Companies District I, Calcutta v. Calcutta Discount Co., Ltd. In that case, the amendment of section 34 by the amending Act of 1948 was discussed. It was argued that the amending Act could not be given effect to with effect from the 30th of March 1948, though it came into force only on the 8th of September 1948. Although the learned counsel has tried to distinguish that case from the present case, we find it difficult to distinguish the principle enunciated in that case from that in the present case. We have already set out the passages relied on by the learned Advocate for the Commissioner of Income‑tax, and it may be mentioned that the cases of Maharajah of Pithapuram v. Com missioner of Income‑tax, Madras, In re Mishrimal Gulabchand and Niranjanlal Ramballav v. Commissioner of Income‑tax, Madhya Pradesh and Bhopal (A R 1953 Nag, 185) have all been referred to and discussed by Chakraborti, C. J., in the case reported in A I R 1953 Cal. 721.

25. As to vested right, interpretation of notification and the criticism of the learned counsel based on section 3 of the Act, we may also refer to the following observations of Chakraborti, C. J., in the case reported in A I R 1953 Cal. 721. "In the view I have taken of section 34, no question of retrospective operation, as a question of interpretation, arises in the present case. 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. There can be no doubt that the Legislature is supreme and it can, if it chooses, legislate so as to alter rights with effect from a prior date. It is only when the in tention of the Legislature does not lie on the surface that a question of interpretation arises and, in such a case, in deciding whether the enactment concerned is intended to operate retrospectively, certain well‑known principles are followed. The present case does not belong to that type, because the effect of the manner in which section 34 was incorporated in the Income‑tax Act and of the words in which the section is expressed is clear. Mr. Mitra was concerned to make out that the new section 34, if applied to assessment years prior to 1948‑49, would affect vested rights. Assuming it would, the short answer to Mr. Mitra's argument is that vested rights can be affected by a new enactment operating retrospectively if it contains express words or exhibits a necessary intendment to that effect, as section 34 clearly does . . . . "

26. As to section 3 of the Act, on which reliance has been placed by the learned counsel, all that we need say is that so far as the dates are concerned, the notification in question has not made any alteration.

27. So, for the reasons stated by us, our answer to the point in both the two Reference Cases, though formulated a little differently, will be in the affirmative, i.e., in our opinion, the Notification, dated the 24th of August, 1951, issued by the Central Board of Revenue was legally operative in making the assessment for the year 1951‑52 in all jute cases which had not carried on any such business in East Bengal before the 1st October 1949. The References are disposed of in the above manner without any order, as to costs. CHAKRABORTI, J.‑I agree with my lord the Chief Justice. References answered in affirmative.