PETITIONER: INCOME-TAX OFFICER, TUTICORIN Vs. RESPONDENT: T. S. DEVINATH NADAR & ORS. DATE OF JUDGMENT: 25/10/1967 BENCH: MITTER, G.K. BENCH: MITTER, G.K. WANCHOO, K.N. (CJ) BACHAWAT, R.S. RAMASWAMI, V. HEGDE, K.S. CITATION: 1968 AIR 623 1968 SCR (2) 33 CITATOR INFO : R 1973 SC2585 (13) RF 1981 SC 271 (39) ACT: Indian Income-Tax Act, 1922 as amended by Act 25 of 1953, s. 35(5) -Rectification of partners assessment consequent on reassessment of firm Section permitting such rectification in respect of "completed assesment" of partners-Section whether applies to partner's assessments finalised before 1st April 1952. HEADNOTE: The respondent and his four brothers were partners in a firm carrying on business in gunnies. The assessment of the firm for the year 1943-44 was completed on January 22, 1946 and the share income of each partner was also determined. The assessment of the respondent as an individual on the basis of his share so determined was completed on January 24, 1946. Subsequently the assessment of the firm was reopened by notice under s. 34 of the Indian Income-tax Act, 1922 issued on September 11., 1952 and re-assessment by including some additional income was made in May 1959. In July 1959 notice under s. 35(5) was served on the respondent for consequential rectification of his assessment as an indivi- dual. The rectification was ultimately ordered to be made in August 1959. The respondent filed a writ petition in the High Court for quashing the order. Relying on the decision of this Court in Second Addl. Income-tax Officer v. Atmala Nagaraj the High Court quashed the impugned order. The Revenue appealed to this Court. The question that fell for consideration was whether s. 35(5) which was introduced by the Income-tax Amendment Act, 1953 could be used to rectify assessments made before 1st April 1952, the date from which the said amendment came into force. The respondent urged that since the amendment had 'been brought into force from an anterior date no greater retrospectivity could be given to it. HELD : (Per Wanchoo C.J., Bachawat, Ramaswami and Mitter, JJ) The aim of the legislation was to bring into line the assessment of the individual partner with that of the firm. It does not stand to reason that if the assessment of the firm is completed long after that of the individual by revision of proceedings under s. 34 or otherwise the discrepancy in the income of the partner -as shown by the assessment of the firm and as an individual should continue or be left untouched, and the Obvious and logical course should be to rectify the assessment of the individual on the basis of the final assessment of the firm. [39B] On a plain reading of s. 35(5) it appears that the legislature intended that the finding as to the non- inclusion of the proper share of the partner in the profit or loss of the firm in the assessment of the partner should excite the power of rectification. The power is to be exercised whenever"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." The subject matter of rectification is the completed assessment of a partner in the firm. This is brought out by the. use of the words when in respect of any completed assessment of a partner in a firm." There is nothing in the section to show that such "completed assessment" must Like place after s. 35(5) was brought on the statute book. What must take place to give rise to the power of rectification is the finding on the assessment or 34 re-assessment of the firm. The finding alone must be made after the section came into force. The finding is to be given effect to or made operative on the 'completed assessment of a partner. As the mischief sought to be rectified was the discrepancy between the income of the partner assessed as an individual and his income as computed on the assessment of the firm, the legislature must be held to have made the remedy applicable whenever the mischief was discovered. There would have been nothing unjust in making the power of rectification exercisable at any time after the discovery of the discrepancy but the legislature in its wisdom did not think that the power should be used except within a limited period of four years from the date of the final order in the case of the firm. [39D-H] Second Addl. lncome-tax Officer v. Atmala Nagaraj 46 I.T.R. 609, reversed. Kanuinarlapudi Lakshminarayana Chetty v. First Additional Income-tax Officer, Nellore, 29 I.T.R. 419, lncome-tax Officer, Madras v. S. K. Habibullah, Madras, [1962] Supp. 2 S.C.R. 716, Pardo v. Bingham, L.R. 4 Chancery Appeals 735 and Ahmedabad Manufacturing and Calico Printing Co. Ltd. v. S. C. Mehta, [1963] Supp. 2 S.C.R. 92, referred to. Per Hegde, J (dissenting). The assessments of the respondents had become final in the year 1946 and under the law as it stood prior to the ,enactment of s. 35(5) those assessments could not have been interfered with. Section 35(5) neither expressly nor by necessary implication em- powers the Income-tax Officer to reopen assessments which had become final. If the section empowers the reopening of all final assessments of the partners of firm, there was no need to give that provision a partial retrospectivity. [51H; 52A] The legislature used the expression "completed assessment" in s. 35(5) to distinguish that class of assessment from assessments which are made final under the Act. By using that expression the legislature intended that the assessment of a partner should not be considered as a final assessment till the assessment of the firm becomes final. In other words the partners' assessment would continue to be tentative till the firm's assessment 'becomes final, If that be the true interpretation of the expression " completed assessment" then the expression can only apply to assess- ments of partners made on or after April 1, 1952. The respondents' assessments could not be considered as "completed assessments" within the meaning of that word in s. 35(5). [52F-H] The decision of this Court in Atamla Nagarajs case is correct. Even assuming that s. 35(5) can receive a different interpretation, this Cot= would not be justified in overruling its previous decision except under compelling circumstances; otherwise confidence of the public in the of this Court is bound to be shaken. [53C-E] BengaL Immunity Co. Ltd. v. State of Bihar & Ors., [1955] 2 S.C.R. 603, relied on. Case Law referred to. JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2154 to
2158 of 1966.
Appeals by special leave from the judgment and order dated
March 27, 1963 of the Madras High Court in Writ Petitions
Nos. 1229 to 1233 of 1961.
S. K. Aiyar and R. N. Sachthey, for the appellant (in all
the ,appeals) –
T. A. Ramachandran, for the respondents (in all the
appeals),
35
The Judgment of WANCHOO, C.J., BACHAWAT, RAMASWAMI and
MITTER, JJ. was delivered by MITTER, J. HEGDE, J. delivered
a dissenting Opinion.
Mitter, J. This group of five appeals by special leave
arises out of a common order made under Art. 226 of the
Constitution of the High Court of Judicature at Madras. The
appeals involve the interpretation of s. 35 (5) of the
Income-tax, Act, 1922.
The facts in Civil Appeal No. 2154 of 1966 relevant for the
disposal of the appeal, taken by way of sample, are as
follows. The respondent along with his four brothers were
partners of a registered firm carrying on business in
gunnies. The assessment of the firm for the year 1943-44
was completed on January 22, 1946 and the share income of
each partner was determined at Rs. 8,265/-. The assessment
of the respondent as individual was completed on January 24,
1946 wherein was included his income from the partnership
just noted. Subsequently, the assessment of the firm was
re-opened by proceedings under s. 34(1) (a,) of the Act and
a sum of Rs. 90,000/- was added to the income of the firm
liable to be brought to tax. The notice under s. 34 was
issued on September 11, 1952 and the reassessment of the
firm took place on May 30, 1959. On July 24, 1959 notice
under s. 35(5) of the Act was served on the respondent for
rectification of his assessment as an individual. The
rectification was ultimately ordered to be made on August
31, 1959. The respondent applied to the High Court for
quashing the said order.
When the matter came to be heard by the High Court of
Madras, there were already three reported-decisions of this
Court bearing on the interpretation of s. 35(5) of the Act.
In the last of these, decisions, a doubt had been cast as to
the correctness-of the two earlier decisions but the High
Court felt that the decision in Second Addl. Income-tax
Officer v. Atmala Nagaraj(1) being the second decision of
this Court in point of time, was fully aplicable to the
cases before it and in that view of the matter the order of
rectification was quashed. Hence these appeals.
Before taking note of the earlier decisions of this Court,
it would be appropriate to consider the relevant provisions
of the Income-tax Act and interpret them as if the matter
were res Integra. If the result leads to a conflict of
decisions, we will have to examine the question as to
whether the view taken in an earlier case should be adhered
to. It is only when this Court finds itself unable to
accept the earlier view that it would be justified in
deciding these appeals in a different way.
(1) 46 I.T.R. 609
36
The two sub-sections of S. 35 which call for interpretation
are transcribed is follows :
“35. Rectification of mistake.-(1) The
Commissioner or Appellate Assistant
Commissioner may, at any time within four
years from the date of any order passed by him
in appeal or, in the case of the Commissioner,
in revision under section 33A and the Income-
tax Officer may, at any time within four years
from the date of any assessment order or
refund order passed by him on his own motion
rectify any mistake apparent from the record
of the appeal, revision, assessment or refund
as the case may be, and shall within
the like
period rectify any such mistake which has been
brought to his notice by an assessee :
Provided that no such rectification shall be
made, having the effect of enhancing an
assessment or reducing a refund unless the
Commissioner, the Appellate Assistant
Commissioner or the Income-tax Officer, as the
case may be, has given notice to the assessee
of his intention so to do and has allowed him
a reasonable opportunity of being heard :
Provided further that no such rectification
shall be made of any mistake in any order
passed more than one year before the
commencement of the Indian Income-tax
(Amendment) Act, 1939.
(2) to (4)……………
(5) Where in respect of any completed
assessment of a partner in a firm it is found
on the assessment or reassessment of the firm
or on any reduction or enhancement made in the
income of the firm under section 31, section
33, section 33A, section 33B, section 66 or
section 66A 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 sub-section
being computed from the date of the final
order passed in the case of the firm.
(6) to (10)……………..
Section 35 (5) was brought on the statute book
by the Income-tax (Amendment) Act, 1953 (XXV
of 1953). Section 1(2) of the Act provided
that
37
“Subject to any special provision made in this
behalf in this Act, it shall be deemed to have
come into force on the 1st day of April,
1952.”
The Amendment Act contained provisions which show that some
of the amendments introduced were to be effective from dates
other than 1st April, 1952. Section 19 of the Act of 1953
introduced sub-sections (5), (6) and (7) of s. 35 of the
original Act. Under sub-s. (1) of s. 35 the Income-tax
authorities mentioned therein were empowered to rectify
mistakes apparent from the record. Such power could, in the
case of an Income-tax Officer, be exercised at any time
within four years from the date of any assessment order
passed by him on his own motion. The section however
imposes a limitation in that the mistake must be in the re-
cord of the case itself. As a firm and the individuals
composing it are separate entities for the purpose of
Income-tax Act, they are assessed separately. Under s.
23(5)(a) of the Act when the assessee is a registered firm
and its income has been assessed under sub-s. (1), sub-s.
(3) or sub-s. (4) of that section the income-tax payable by
the firm itself has to be determined and the total income of
each partner of the firm including therein his share of the
firm’s income, profits and gains of the previous year have
to be assessed and the sum payable by him on the basis of
such assessment has to be determined. In as much however as
a mistake discovered in the assessment of the firm was not a
mistake apparent from the record of assessment of the
individual partner-, s. 35(1) did not enable the Income-tax
Officer to rectify the assessment of the individual partner
because of the discovery of the. mistake in the assessment
of the firm. The judgment of the Andhra Pradesh High Court
in Kanumaral pudi Lakshminarayana Chetty v. First Additional
Income-tax Officer, Nellore(1) wherein it was decided that
when the mistake discovered in the assessment of the firm
was not in the record of the individual partner s. 35(1) did
not authorise the rectification of such mistakes was upheld
by, this Court in The Income-tax Officer, Madras v. S. K.
Habibullah Madras(2). Section 35(5) removes that
difficulty. It expression provides that where it is found
on the assessment or reassessment, of the firm or on any
reduction or enhancement made in the income of the firm
under the provisions of the specified sections 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 will be deemed to be a
rectification of a mistake apparent from the record within
the meaning of s. 35 so as to make sub-s. (1) of s. 35
applicable to the case of a completed assessment of a
partner in a firm. Whereas under s. 35(1) rectification is
only possible within four years from the date of any
assessment
(1) 29 I.T.R. 419.
(2) [1962] Supp. 2 S,C.R, 716.
38
order or refund order passed by the Income-tax Officer, the
starting point of computation of the period of four years
under S. 35(5) is the date of the final order passed in the
case Of the firm.
The point which has been canvassed in this case in favour of
the respondent is that as the section was brought on the
statute book on the 1st April 1952 any mistake anterior to
that date cannot be rectified. It was argued that the
opening words of the section reading
“Where in respect of any completed assessment
of a partner in a firm”
go to show that only assessments completed after
the introduction of the provision i.e. on 1st April 1952
were in the contemplation of the legislature as proper
subject for rectification. It was urged that according to
the well known canons of construction legislation which
impairs an existing right or obligation except is regards
matters of procedure, is not to have retrospective operation
unless such construction is clear from the terms of the Act
itself. This argument was sought to be fortified by a
reference to sub-s. (2) of S.1 of the Income-tax Amendment
Act of 1953 on the -round that the legislature was bringing
this provision on the statute book as from an anterior date
and consequently no greater retrospectivity should be given
to it. “The general rule” as Halsbury puts it in Vol. 36,
(third edition), page 423 :
” . . . .. . . . . . . . . is that all
statutes, other than those which are merely
declaratory, or which relate only to matters
of procedure or of evidence, are prima facie
prospective; and retrospective effect is not
to be given to them unless, by express words
or necessary implication, it appears that this
was the intention of the legislature.”
The law was also succinctly stated by Lord Hatherley, L.C.
in Pardo v. Bingham(1) where on the question as to whether a
statute operated retrospectively it was said
“In fact, we must look to the general scope
and purview of the statute, and at the remedy
sought to be applied, and consider what was
the former state of the law, and what it was
that the Legislature contemplated.”
Applying the above principles, we find that the aim of the
legislation was to bring into line the assessment of the
individual partner with that of the firm. It was well known
that in many cases a firm’s final assessment dragged on for
years while the assessments of the individuals composing- of
it were completed
(1) L.R. 4 Chancery Appeals 735.
39
long before the assessment of the firm itself because in the
case of individuals the matter was fairly simple. It does
not stand to reason that if the assessment of the firm is
completed long after that of the individual by reason of
proceedings under s. 34 or otherwise, the discrepancy in the
income of the partner as shown by the assessment of the firm
and as an individual should continue or be left untouched
and the obvious and logical course should be to rectify the
assessment of the individual on the basis of the final
assessment of the firm. Sub-s. (5) of s. 35 is only a step
in that direction but the legislature in its wisdom thought
it best that assessments of individuals which had taken
place before the final order in the assessment of the firm
should not be, disturbed except within four years therefrom.
Under the Income-tax Act, 1922 a final assessment could not
be altered except under proceedings sanctioned by s. 34 or
s. 35 of the Act within the limits of time thereby
prescribed. Leaving aside for a moment the point of time
when sub-s. (5) came into the statute book, on a plain
reading of the provision it appears to us that the legisla-
ture intended that the finding as to the non-inclusion of
the proper share of the partner in the profit or loss of the
firm in the assessment of the partner should excite the
power of rectification. The power is to be exercised
whenever “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”. The subject matter of rectification is
the completed assessment of- a partner in a firm. This is
brought out by the use of The words “where in respect of any
completed assessment of a partner in a firm”. There is
nothing in the section to show that such “completed
assessment” must take place after the provision i.e. s.
35(5) was brought on the statute book. What is to take
place to give rise to the power of rectification is the
finding on the assessment or re-assessment of the firm etc.
The finding alone must be made after section comes into
force. The finding is to be given effect to or made more
operative on the “completed assessment” of a partner. As
the mischief sought to be rectified was the discrepancy
between the income of the partner assessed as an individual
and his income as Computed on the assessment of the firm,
the legislature must be held to have made the remedy,
applicable whenever the mischief was discovered. There
would have been nothing unjust in making the power of
rectification exercisable at any time after the discovery of
the discrepancy but the legislature in its wisdom did not
think that the power should be used except within a limited
period of four years from the date of the final order.
This group of appeals has been referred to a larger Bench
than one of the three Judges before whom the matter was
opened on May 4, 1967 because of the earlier decisions of
this Court: We now proceed to examine these decisions
chronologically. In The
40
Income-tax Officer, Madras v. S. K. Habibullah(1) the facts
were as follows. One Mohiuddin who was a partner in two
registered firms submitted returns of his income
incorporating therein the estimated share of losses in the
two firms for the assessment years 1946-47 and 1947-48. The
estimates of the assessee were accepted by the Income-tax
Officer who completed the assessment for ,the two years on
February 20, 1950. The assessment of one of the firms for
the same years was completed on October 31, 1950 but the
proportionate share of the assessee for the losses was
computed at much smaller figures. The assessment of the
other firm for 1947-48 was completed on June 30, 1.951 again
for a smaller sum than that estimated by the assessee. The
Income-tax Officer started rectification proceedings on May
4, 1953 and ultimately passed an order for rectification on
March 27, 1954 after taking into account the share of the
losses as computed in the assessment of the two firms. It
will be noted at once that the finding about the
incorrectness of the losses of the firm as estimated by -the
assessee as also the completion of his assessment preceded
April 1, 1952 and on the view of the section which we have
taken it could not be made applicable at all. It was stated
in express terms by this Court
“The power to rectify assessment of a partner
consequent upon the assessment of the firm of
which he is a partner by including or
correcting his share of profit or loss can
therefore be exercised only in the case of
assessment of the firm made on or after April
1, 1952.”
The decision in Habibullah’s(1) case therefore in no way
conflicts with the view of S. 35(5) which we have taken
above. III passing, however, it may be noted that in
Habibullah’s(1) case a reference was made to sub-s. (6) of
S. 35 which was introduced in the statute book by s. 19 of
the Amendment Act of 1953 it the same time was sub-s. (5).
There are certain words in sub-s. (6) which -,Ire not to be
found in sub-s. (5) and on a contrast between the language
used in the two sub-sections it was observed in
Habibullah’s(1) case :
“When the Legislature under cl. (6) of s. 35
expressly authorised rectification in the
circumstances mentioned therein even if the
assessment has been completed before the
Indian Income-tax (Amendment) Act, 195
3, and it
made no such provision in cl. (5), it would be
reasonable to infer that the Legislature did
not intend to grant to the revenue authorities
a power to rectify assessments falling within
cl. (5) where the firm’s assessment was
completed before April 1, 1952.”
(1) [1962] Supp.2 S.C.R.1,716.
41
This reasoning was advanced before us in aid of the argument
that sub-s. (5) should have no retrospective operation
beyond April 1, 1952. We do not want to express any view as
to the interpretation of sub-s. (6) but in our opinion, sub-
s. (5) was clearly intended to give retrospective effect to
final orders made in the case of the firm by incorporation
of the result thereof in the case of the partner as an
individual.
The second decision of this Court is that of Second Addl.
Income-tax Officer v. Atmala Nagaraja(1). In this case the
proceedings related to the assessment of the respondent for
the assessment year 1950-51. The respondent in one of the
appeals was assessed as an individual while in the other
appeal the respondent was assessed as a Hindu undivided
family. The original assessment was completed in both cases
on January 22, 1952. The two assessees held shares in two
registered firms and the shares from the profits of these
firms were included in the assessable income of the two
respondents. The assessments of the firms were completed by
an order dated October,16, 1954 when it was found that the
aggregate shares of income from the two firms in the case of
each of the respondents were more than that for what they
had been assessed. After starting proceedings under s. 35
an additional demand was made whereupon the respondents
moved the High Court of Andhra Pradesh. After referring to
Habibullah’s (2) case and K. Lakshmimarayana Chetty’s(3)
case it was said :
“The assessment of the respondents was a final
assessment before April 1, 1952, and sub-
section (5) has not been made applicable to
such assessment, either expressly or by
implication. It has been given a limited
retrospectivity from April 1, 1952, and it was
held by this court in the cited case that it
was not open to courts to give more
retrospectivity to it. Resort in this case
could only be taken to the law as it stood
before the introduction of sub-section (5),
and as determined already by this court, the
record of the firm’s assessment could not then
be called in aid to demonstrate an error on
the record of a partner’s assessment. . . . In
our opinion, sub-section (5) could not be used
in this case, and the decision of the High
Court was right.”
With very great respect, we find ourselves unable to concur.
As we have already said, sub-s. (5) becomes operative as
soon as 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
(1) 46 I.T.R. 609.
L 10 Sup.(CI)168-4
(2) [1962] Supp. 2 S.C.R. 716.
(3) 29 I.T.R. 419.
42
that the share of the partner in the profit or loss of the
firm had not been included in the assessment of the partner
or if included was not correct. The completion of the
assessment of the partner as an individual need not happen
after April 1, 1952. The completed assessment of the
partner is the subject matter of rectification and this may
have preceded the above mentioned date. Such completion
does not control the operation of the sub-section. In the
result, we find ourselves unable to concur in the decision
or the reasoning in Atmala Nagaraj’s(1) case.
The last case in the series is that of Ahmedabad Manufactur-
ing and Calico Printing Co. Ltd. v. S. C. Mehta (2 ). In
this case the Court had to consider sub-s. (10) of s. 35
which was introduced by s. 19 of the Finance Act, 1956. The
Bench hearing this appeal was composed of five Judges and
two of them, S. K. Das and J. L. Kapur, JJ., took the view
that Habibullah’s (5) case had been correctly decided but
that Atmala Nagaraj’s(1) case might require re-consideration
although they did not express any final opinion on that
point. Sarkar, J. ‘(as he then was) did not think that much
assistance could be had from Habibullah’s case(-;) in the
matter of interpretation of sub-s. (10) of s. 35. He said
further:
“There is nothing in S. K. Habibullah’s(3)
case to indicate that in the opinion of the
learned Judges deciding it there were any
words which would indicate that sub-s. (5) was
to have a retrospective operation. In my
view, sub-s. (10) contains such words.”
The judgment of the two other Judges, Hidayatullah and
Raghubar Dayal, JJ. was delivered by Hidayatullah, J. who
dealt with the subject of retrospective operation of
statutes elaborately and discussed Habibullah’s case(1) at
some length and expressed the view (at p. 125) that although
the section mentioned the final order in the firm’s
assessment as the starting point “there was nothing to show
that this new terminus a quo must be after 1-4-1952 before
sub-s. (5) could be used.” According to Hidayatullah, J.
“the words of the sub-section were entirely indifferent to
this aspect.” The learned Judge was however careful to add
that this must not be considered as his final opinion on
sub-s. (5). Any opinion of Hidayatullah, J. even with the
above qualification merits the highest-respect. After
giving very anxious consideration to the views expressed by
the learned Judge, we still hold that by sub-s. (5) of s. 35
the legislature intended that rectification should be made
on the finding as to the incorrectness of the assessment of
the firm after the provision was introduced in the statute
book, viz., 1-4-1952. There would have been nothing unjust
or inequitable in the legislature directing that
rectification
(1) 46. I.T.R. 609. (2) [1963] Supp. 2 S.C.R. 92.
(3) [1961] Supp. 1 S.C.R. 716.
43
of the assessment of the partner should always follow the
assessment or re-assessment of the firm made finally. On
the other hand, we think rectification of the partner’s
assessment should logicallyfollow the re-assessment or
modification of the firm’s assessment. Otherwise, there
would be an unaccounted for divergence between a person’s
assessment as an individual and his assessment as a partner
of a firm. But the legislature, in our opinion, did not
intend to disturb completed assessment of partners except
within the period of time indicated earlier in this judgment
and unless the finding as to the incorrectness of the firm’s
assessment was made after the terminus a quo above men-
tioned.
In the result, the appeals are allowed. The judgment and
order of the High Court of Madras are set aside and the
orders of rectification passed by the Income-tax Officer are
held to be effective and binding on the respondents. In the
circumstances there will be no order as to the costs of
these appeals.
Hegde, J. The respondents in these appeals were the
partners, of a registered firm carrying on business in
gunnies. For the assessment year 1943-44, i.e., the
assessment year ending March 31, 1944, the firm. in question
was assessed to tax on 22-1-46. Two days thereafter, namely
on January 24, 1946, the partners of the said firm were also
assessed to tax for the assessment year 1943-44 after taking
into consideration their share of profits in the firm. The
Indian Income Tax Act 1922, to be hereinafter referred to as
the Act, was amended by Act 25 of 1953. The said amending
Act among other provisions incorporated s. 35(5) into the
Act. Section 1(2) of that Act provided that “subject to any
special provision made in this behalf in this Act, it shall
be deemed to have come into force on the 1st day of April
1952”. On September 11, 1952, the ITO issued notice to the
firm under s. 34 of the Act requiring the firm to show cause
why its assessment for the assessment year 1943-44 should
not be re-opened and enhanced for the reasons mentioned in
that notice. In the proceedings that followed the
assessment of the firm was substantially enhanced on 30-5-
59. Thereafter, the proceedings against the respondents
were initiated under s. 35(5) read with s. 35(1) as per the
notices dated 24-7-59. In those proceedings the assessment
of the respondents for the assessment year 1943-44 was
enhanced. The respondents challenged the validity of those
proceedings in the High Court of Judicature at Madras in
writ petitions 1229-1233 of 1961 on its file. The High
Court following the decisions of this Court in Income Tax
Officer, Madras v. S. K. Habibullah (1) and Second
Additional Income Tax Officer, Guntur v. Atmala Nagaraj and
others(2), allowed those writ petitions and quashed
(1) 119621 Supp. 2 S.C.R. 716.
(2) 46 I.T.R. 609.
44
the impugned orders. These appeals are directed against the
said decision.
As the matters now stand, the question of law arising for
decision is not res integra. It is concluded by the
decision of this Court in Atmala Nagaraj’s(1) case, wherein
this Court laid down that sub-s. 5 of S. 35 was not
applicable to cases where the assessment of a partner of a
firm was completed before April 1, 1952 even though the
assessment of the firm was completed after April 1, 1952.
Evidently, encouraged by some of the observations in the
decision of this Court in Ahmedabad Mfg. & Calico Printing
Co., Ltd. v. S. S. Mehta, Income Tax Officer and another(1),
Mr. S. K. Aiyer, learned counsel for the department
contended that Habibullah’s (3) case and Atmala Nagaraj’s(1)
case were not correctly decided and that they should be
overruled. Though the majority have not acceded to the
contention of Mr. S. K. Aiyer that Habibullah’s(1) case has
not been correctly decided, it has accepted his contention
that Atmala Nagarajs(1) case was not correctly decided. As
I am unable to concur with that conclusion, I am constrained
to deliver this dissenting judgment. In my opinion, no case
is made out to overrule the decision of this Court either in
Habibullah’s(3) case or in Atmala Nagaraj’s(1) case.
As seen earlier, the assessments in question were made as
far back as January 24, 1946. Every assessment under the
Act is final unless the same is modified in appeal or
revision or reopened under S. 34 or rectified under S. 35.
The assessment with which we are concerned in this case was
neither modified in appeal or revision nor reopened under s.
34. The question for decision is whether it can be
rectified under S. 35.
Under the Act, the assessment of a firm and the assessment
of its partners are two different assessments though in
assessing a partner his share in the firm’s profits is added
to his other income. In fact, the profits of a registered
firm are subject to double tax, firstly in the hands of the
firm and nextly in the hands of its partners. As the law
stood prior to the amending Act 25 of 1953, the assessment
of a partner could not be rectified under S. 35(1) on the
ground that the firm’s assessment had been enhanced as a
result of re-assessment. In other words, the re-assessment
of a firm could not be considered as a mistake apparent from
the records of the assessment of its partners. That was the
view taken by the Andhra Pradesh High Court in Kanumarlapudi
Lakshminarayana Chetty v. First Additional Income tax
Officer, Nellore(1) and that view was accepted as correct by
this Court in Habibullah’s case(1). Therefore, all that we
have to see is whether
(1) 46 I.T.R. 609.
(3) [1962] Sup. 2 S.C.R. 716.
(2) [1963] Supp. 2 S.C.R. 92.
(4) 29 I.T.R. 419.
45
35(5) one of the group of clauses added by Act 25 of 1953
could have been availed of by the ITO in making the impugned
rectifications.
Section 35(5), the extent it is material for our present
purpose, reads as follows :
“Where in respect of any completed assessment
of a partner in a firm, it is found on the
assessment or reassessment of a 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 of 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
provisions of sub-sections (1) shall apply
thereto accordingly, the period of four years
referred to in that sub-section being computed
from the date of the final order passed in the
case of the firm.”
Section 35(1) empowers the income tax authorities to rectify
mistakes apparent from the record of certain orders passed
by them. The clause (omitting parts not material) provides
that the income tax officer may, any time within the 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. As seen earlier, prior to the
amending Act 25 of 1953, the ITO could not have made the
rectifications with which we are concerned in these appeals.
Therefore, the question for decision is whether by the
exercise of the powers conferred on him by s. 35(5), the ITO
could have validly made the impugned rectifications ?
It may be noted that in these cases both the assessment of
the firm as welt as the assessment of its partners were made
long before April 1, 1952. But the assessment of the firm
was reopened and the firm reassessed after that date. In
Habibullah’s(1) case this Court laid down that the
legislature had given to cl. 5 of s. 35 which was
incorporated with effect from April 1, 1952, a partial
retrospective operation. The provision enacted by cl. 5 is
not Procedural in character. It affects the vested rights
of the assessee. Therefore in the absence of compelling
reasons, the court would not be justified in giving a
greater retrospectivity to that provision than is warranted
by the plain words used by the legislature. Cl. 5 of s. 35
does not purport to amend cl. I of the same section. It
confers additional powers upon the income tax authorities
and that power cannot be exercised in respect of assessment
of a firm which had been completed before the date on which
the power had been invested. This Court quoted with
approval
(1) [1962] Sup. 2 S.C.R. 716
46
the observations of the Privy Council in Income Tax
Commissioner v. Khemchand Ramdas(1) :
“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 3 5 of the Act…. and
within the time limited by those sections.”
From this decision the correctness of which is not doubted
by the majority, it follows that s. 35(5) is only
retrospective as from April 1, 1 952; it has no greater
retrospectivity and that section cannot affect vested
rights. No doubt that decision was dealing with the
assessment of a firm, but the ratio of that decision, in my
opinion, applies with equal force to the assessment of a
partner If the assessment of a firm made before April 1,
1952 cannot be reopened under s. 35(1) read with s. 35(5),
the same must be equally true of the assessment of a partner
of a firm. The ratio of the decision in Habibullah’s(1)
case is that rights which have become final prior to April
1, 1952 cannot be affected by having recourse to s. 35(5).
By applying the ratio of the decision in Habibullah’s(2)
case this Court held in Atmala Nagaraj’s(3) case that sub-s.
5 of s, 35 was not applicable to cases where the assessment
of a partner was completed before April 1, 1952 even though
the assessment of the firm of which he was the partner was
completed after April 1 1952. At p. 612 of the report, this
is what this Court observed in Atmala Nagaraj’s(3) case :
“Here, the original assessment was made before
the amendment, and to that assessment the
amended provision cannot still be made
applicable for the reason to be given by us,
even though the assessments of the firms were
after April 1, 1952, and sub-section (5) has
not been made applicable to such assessment,
either -expressly or by implication. It has
been given a limited retrospectivity from
April 1, 1952, and it was held by this court
in the cited case that it was not open to
courts to give more retrospectivity to it.
Resort in this case could only be taken to the
law as it stood before the introduction of
sub-section (5), and as determined already by
this Court, the record of the firm’s
assessment could not then be called in aid to
demonstrate an error on the record of a
partne’s assessment. It was further held in
S. K. Habibullah’s (2) case that the provision
enacted by sub-section (5) is not procedural
in character and that it affects vested rights
of an assessee. In our
(1)65 I.A. 248.
(3) 46 I.T.R. 609.
(2) [1962] Supp. 2 S.C.R. 716
47
opinion, subsection (5) could not be used in
this case, and the decision of the High Court
was right.”
It may be noted that both the decisions in Habibullah
case(1) and Atmala Nagaraj’s case(1) were rendered by the
same Bench (consisting S. K. Das, Hidayatullah and Shah,
JJ.) I am unable to accept the, contention that Almala
Nagarai’s case(1) laid down any new legal principle. It
merely applied the principle laid down in Habibullah’s
case(1) to the facts of that case. In my opinion there is
no legal basis to distinguish the one from the other.
In Ahmedabad Manufacturing and Calico Ptg., Co., case(3),
this Court was called. upon to interpret the scope of sub-s.
10 of s. 35 of the Act which was brought into force on April
1, 1956. The language of that provision is wholly different
from that of s. 35(5). It is not clear from the report why
in that case it became necessary to consider the correctness
of the decisions of this Court in Habibullah’s case(1) and
Atmala Nagaraj’s ( 2 ) case. But it appears that in the,
course of the arguments the correctness of’ those decisions
was put into issue. Three separate judgment were delivered
in that case, one on behalf of S. K. Das and Kapur, JJ, by
Das, J. another on behalf of Hidayatullah and Raghubar
Dayal, JJ. by Hidayatullah J, and the third by Sarkar, J.
Sarkar J. in his judgment, merely referred to Habibullah’s
case(1) and not to Atmala Nagaraj’s(1) case. Dealing with
Habibullah’s case(1), this is what his Lordship observed :
“As to S. K. Habibullah’s case(1) I do not
think that much assistance can be had from it.
It applied the rule of presumption against a
statute having a retrospective operation-as to
which rule, of course, there is no dispute-to
sub-s. (5) of s. 35. Now cases on the cons-
truction of one statute, are rarely of value
in construing another statute. for each case
turns on the language with which it is
concerned and statutes are not often expressed
in the same language. The language used in
sub-ss. (5) and (10) seems to me to be wholly
different. There is nothing in, S. K.
Habibullah’s case(1) to indicate that in the
opinion of the learned Judges deciding it
there were any words which would indicate that
sub-s.(5) was to have a retrospective
operation. In my view, sub-s’ (10) contains
such words. Furthermore, I do not find that
the other considerations’ to which I have
referred arose for discussion in that case.
In my view, the two cases are entirely
different.”
(1) [1962] Supp. 2 S.C.R. 716.
(3) [1963] Supp. 2 S.C.R. 92.
(2) 46 f.T. R. 609.
48
Das, J. accepted the correctness of the decision in
Habibullah’s case(1) but while dealing with Atmala Nagaraj’s
case (2 ) he observed :
“We may point out, however, that in Second
Additional Income tax Officer v. Atmala
Nagaraj(2) this court went a step further and
held that sub-s. (5) of s. 35 was not
applicable to cases where the assessment of
the partner was completed before April 1,
1952, even though the assessment of the firm
was completed after April 1, 1952. Learned
counsel for the appellant frankly conceded
before us that he did not wish to go as far as
that and contend that even in a case where a
declaration of dividend was made after April
1. 1956, sub-s. (10) would not apply; because
that would make sub-s. (10) unworkable. The
decision is Second Additional Income Tax
Officer v. Atmala Nagaraj(2) may perhaps
require reconsideration as to which we need
not express any final opinion now, but so far
as this case is concerned we see no reason why
the, principle in S. K. Habibullah’s case(1)
will not apply.”
But Hidayatullah, J. who as mentioned earlier was a party to
both the decisions dealing with those decisions observed :
“We do not naturally express a final opinion
on sub-s. (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.”
For the reasons to be presently stated I would rather prefer
to follow the decisions in Habibullah’s case(1) and Atmala
Nagaraj’s case(2) which I am sure must have been rendered
after deep consideration rather than the passing doubts
hesitatingly expressed by two of the learned Judges who were
parties to those decisions. As seen earlier, even the
majority has not shared the doubts expressed by
Hidayatullah, J. as regards correctness of the decision in
Habibullah’s case(1).
The rule laid down in Habibullah’s(1) and Atmala Nagaraj’s
(2 ) cases is a well settled rule. Dealing with the inter-
pretation of taxing statutes, it is observed in Halsbury’s
Laws of England (Vol. 36, pp. 416-17)
“The language of a statute imposing a tax,
duty or charge must receive a strict
construction in the sense that there is no
room for any intendment, and regard must be
had to the clear meaning of the words. If the
Crown claims a duty under a statute, it must
show that duty is imposed by clear and
unambiguous words, and where the meaning of
the statute is in doubt, it must
(1) [1962] Supp., C.R.716
(2) 46 I.T.R 669.
49
be construed in favour of the subject,
however, much within the spirit of the law the
case might otherwise appear to be; but a fair
and reasonable construction must be given to
the language used without leaning to one side
or the other.
The rule that the literal construction of a
statute must be adhered to, unless the context
renders it plain that such a construction
cannot be put on the words, is especially
important in cases of statutes which impose
taxation. There is no rule admitting
equitable construction of a taxing statute;
that is to say cases which are not within the
actual words of the statute cannot be brought
within the statute by consideration of its
governing principle or intention.”
Rowlatt, J. observed in Cape Brandy Syndicate v. Inland
Revenue Commissioner(1) :
“In a taxing Act one has to look merely at
what is clearly said. There is no room for
any intendment. There is no equity about a
tax. There is no presumption as to a tax.
Nothing is to be read in, nothing is to be
implied. One can only look fairly at the
language used.”
These principles have been accepted as correct both by the
English Courts and the superior courts in this country. It
is now well settled that if the interpretation of a fiscal
enactment is in doubt, the construction most beneficial to
the subject should he adopted even if it results in
obtaining an advantage to the subject; the subject cannot be
taxed unless he comes within the letter of the law and the
argument that he falls within the spirit of the law cannot
avail the department.
In Commissioner of Income tax, Bombay v. Provident Invest-
ment Co., Ltd. (2 ) this Court quoted with approval the
following, passage from an earlier decision of this Court in
A. V. Fernandez v. State of Kerala(3) :
“If the Revenue satisfies tile Court that the
case falls strictly within the provisions of
the law, the subject can be taxed. If, on the
other hand, the case is not covered within the
four corners of the provisions of the taxing
statute, no tax call be imposed by inference
or by analogy or by trying to probe into the
intentions of the legislature and by
considering what was the substance of the
matter. We must of necessity, therefore, have
regard to the actual provisions of the Act and
the rules made there-
(1) [1921] 1 K.B. 64.
(3) 8 S.T.C. 561.
(2) 32 I.T.R. 190.
50
under before we can come to the conclusion
that the appellant was liable to assessment as
contended by the Sales Tax authorities.”
In Commissioner of Income tax, Bombay v. Elphinstone
Spinning and Weaving Mills Co., Ltd.(1), this Court held
that if the words of the taxing statute fail, then so must
the. tax. The courts cannot, except rarely and in clear
cases, help the draftsmen by a favorable construction.
In Commissioner of Income tax, Bombay v. Jalgaon Electric
Supply Co., Ltd (2) this Court again observed :
“The income tax law seeks to bring within the
net of taxation certain class of income, and
can only successfully do so if it frames a
provision appropriate to that end. If the law
fails and the tax payer cannot be brought
within its letter, no question of unjustness
as such arises.”
In Banarsi Debi and another v. Income tax
Officer, Calcutta, and others(1), it was
observed :
“Before construing the section it will be
useful to notice the relevant rules of
construction of a fiscal statute. In Oriental
Bank Corporation v. Wright (5 A.C. 842) the
Judicial Committee held that if a statute
professed to impose a charge, the intention to
impose a charge on the subject must be shown
by clear and unambiguous language. In
Canadian Eagle Oil Co. v. R. [1946] A.C. 119,
Viscount Simon L.C. observed : ‘In the words
of Rowlatt, J….. in a taxing Act one has to,
look nearly at what is clearly said. There is
no room for any intendment. There is no
equity about a tax. There is no presumption
as to a tax. Nothing is to be read in.
Nothing is to be implied. One can only look
fairly it the language used.”
In other words, a taxing statute must be
couched in express and unambiguous language.
The same rule of construction has been
accepted by this court in Gursahai Saigal v.
Commissioner of Income tax (48 I.T.R. 1)
wherein it was stated: . It is well recognised
that the rule of construction that if a case
is not covered within the four corners of the
provisions of a taxing statute no tax can be
imposed by inference or by analogy or by
trying to probe into the intentions of the
legislature and by considering what was the
substance,
(1) 40 I.T.R. 142.
(3) 53 I.T.R. 100, 104.
(2) 40 I.T.R. 184.
51
of the matter, applies only to a taxing
provision and has no application to all
provisions in a taxing statute’.”
In Commissioner of Income tax, Madras v. Ajax Products
Ltd.(1) this Court quoted with approval the rule laid down
by Rowlatt, J. in Cape Brandy Syndicate case(1) to which
reference has already been made. It went further and
observed :
” To put in other words, the subject is not to
be taxed unless the charging provision clearly
imposes the obligation. Equally important is
the rule of construction that if the words of
a statute are precise and unambiguous, they
must be accepted as declaring the express
intention of the legislature.”
From the foregoing decisions it is clear that the
consideration whether a levy is just or unjust, whether it
is equitable or not, a consideration which appears to have
greatly weighed with the majority, is wholly irrelevant in
considering the validity of a levy. The courts have
repeatedly observed that there is no equity in a tax. The
observations of Lord Hatherley, L.C. in Pardo v. Bingham(3)
“In fact we must took to the general scope and purview of
the statute, and at the remedy sought to be applied, and
consider what was the former state of the law, and what it
was that the Legislature contemplated”, were made while
construing, a non-taxing statute. The said rule has only a
limited application in the interpretation of a taxing
statute. Further, as observed by that learned Judge in that
very case the question in each case is “whether the
legislature had sufficiently expressed its intention” on the
point in issue.
I do not think that the impugned assessments can be said to
be just or equitable even if that consideration is at all
relevant. The assessments of partners of firms, whose
assessments had become final before April 1, 1952 cannot be
reopened. There is no just or equitable -round to
differentiate the case of the respondents from those
assessees. As seen earlier, the assessment of the
respondents had become final as far back as 1946.The would
have arranged their affairs on that basis. Thirteenyears
thereafter, they were called upon to pay additional tax.It
cannot be said that is just or equitable.
This takes me to the question whether the impugned assess-
ments come clearly within the scope of s. 35(5). That is
the only relevant consideration. But before going into that
question we must remind ourselves that the assessments of-
the respondents had become final in the year 1946 and under
the law as it stood prior ‘Lo the enactment of s. 35(5),
those assessments could not
(1)55 I.T. R. 741. [1965] 1 S.C.R. 70)
(3) 4 Ch. Appeals 735.
(2) [1921] 1. K.B. 64.
52
have been interfered with. Section 35(5) unlike several
other provisions in the amending Act of 1953 had been given
only a partial retrospective effect. It is made to be
operative as from April 1, 1952. In this background let us
now proceed to examine s. 35(5).
Before a case can be held to fall within the scope of S.
35(5), two requirements must be satisfied, namely, (1) that
the assessment or reassessment of the firm must have taken
place on or after April 1, 1952, and (2) the assessment of
the partner must be a “completed assessment”. The next
question to be decided is whether the “completed assessment”
referred to in s. 35(5) includes an assessment which had
become final prior to April 1, 1952.
I am unable to find out how the firm’s assessment could have
been validly reopened under s. 34, in September 1952. By
the time the notice under s. 34 was issued, the eight years’
period of limitation prescribed in s. 34 had expired. But
the validity of the firm’s re-assessment does not appear to
have been challenged at any time before the hearing of these
appeals. Hence it is not safe to pursue that question.
The concept of a “completed assessment” was introduced for
the first time by the amending Act 25 of 1952. The Act as
it stood till then only spoke of assessments, re-assessments
and rectification of assessments. What did the legislature
mean by saying completed assessment” in s. 35 (5) ? That
expression is not defined in the Act. The legislature must
be considered to have deliberately used that expression in
place of the expression “assessment” an expression familiar
to courts and the connotation of which is well settled. On
the basis of well recognised canons of construction of
statutes we must give that expression a meaning different
from that given to “assessment”. Evidently, the legislature
used the expression “completed assessments” to distinguish
that class of assessments from assessments which are final
under the Act. It appears to me, by using that expression,
the legislature intended that the assessment of a partner
should not be considered as a final assessment till the
assessment of the firm becomes final. In other words, the
partner’s assessment would continue to be tentative till the
company’s assessment becomes final. If that be the true
interpretation of the expression “completed assessment”, as
I think it is, then that expression can only apply to
assessments of partners made on or after April 1, 1952. The
respondents’ assessments as mentioned earlier had become
final prior to that date. Hence the respondents’
assessments cannot be considered as “completed assessments”
within the meaning of that word in s. 35(5). Consequently
those assessments must be held to be outside the scope of
that section.
53
Section 35(5) neither expressly nor by necessary implication
empowers the I.T.O. to reopen assessments which had become
final. If the legislature wanted to confer such a power it
should have said so as it did in s. 35 (6) and in several
other provisions in the amending Act,-ss.3(2), 7(2) and
30(2) of that Act. Further, if s. 35(5) empowers the
reopening of all final assessments of partners of firms,
where was the need to give that provision a partial
retrospectivity ?. That very circumstance negatives the
contention of the department. Even if it is to be held that
the expression “completed assessment” is an ambiguous
expression, in that event also, the power conferred under s.
35 (5) could not have been exercised to rectify the
assessments in question.
From the foregoing it follows that the decision of this
Court in Atmala Nagaraj’s case(1) is correct. Even assuming
that s. 3 5 (5) can receive a different interpretation and
that interpretation is more reasonable than that adopted by
this Court in Atmala Nagaraj’s case(1), in that even also
this Court would not be justified in overruling its previous
decision, which has the force of law in view of Art. 141 of
the Constitution. I am of the opinion that the decisions of
this Court should not be overruled except under compelling
circumstances. It is only when this Court is fully con-
vinced that public interest of a substantial character would
be jeopardized by a previous decision of this Court, this
Court should overrule that decision. Every time this Court
overrules its previous decision, the confidence of the
public in the soundness of the decision of this Court is
bound to be shaken.
Re-consideration of the decisions of this Court should be
confined to questions of great public importance. In law
finality is of utmost importance. Legal problems should not
be treated as mere subjects for mental exercise. This Court
must overrule its previous decisions only when it comes to
the conclusion that it is manifestly wrong, not upon a mere
suggestion that some or all of the members of the later
Court might arrive at a different conclusion if the matter
was res integra. In Bengal Immunity Co. Ltd. v. The State
of Bihar and others(2), this Court laid do” that there is
nothing in the Constitution which prevents the Supreme Court
from departing from a previous decision of its own if the
Court is satisfied of its error and its baneful effect on
the general interest of the public. Das, Acting C.J.,
speaking for the majority, observed in the course of his
judgment (at p. 630 of the report):
“It is needless for us to say that we should
not lightly dissent from a previous
pronouncement of this Court. Our power of
review, which undoubtedly exists, must be
exercised with due care and caution and only
for advancing the public well being in the
light of the surrounding
(1) 46 I.T.R. 609.
(2) [1955] 2 S.C.R. 603.
54
circumstances of each case brought to our
notice but we do not consider it right to
confine our power within rigidly fixed limits
as suggested before us.”
The question of law with which we are concerned in this case
was of minor importance, at all times. It has become all
the more so because of the passage of time, as it has
relevance only to assessment of partners of firms made
before April 1, 1952, and that too in cases where the
question of enhancing those assessments arises as a result
of the assessment or re-assessment of the concerned firms on
or after April 1, 1952. Such cases are not likely to be
many.
For the reasons mentioned above, I dismiss these appeals
with Costs.
ORDER
In accordance with the opinion of the majority the appeals
are allowed, the judgment and order of the High Court of
Madras are set aside and the orders of rectification passed
by the Income tax Officer are held to be effective and
binding on the respondents. In the circumstances there will
be no order as to costs of these appeals.
G.C.
55