JUDGMENT
T.D. Sugla J.
1. By this petition under Article 226 read with 19(1)(g) of the Constitution of India, the petitioners have challenged the validity and legality of the notice dated 19-1-1987 issued by the Commissioner of Income Tax, Bombay City VIII, Bombay under section 263 of the Income tax Act 1961. It is common ground that during the course of its assessment for the assessment year 1982-83 completed under section 143(3) on 31-10-1984, the petitioners were inter alia granted exemption under section 35(1)(ii) of the Income Tax Act, 1961 irrespect donation of Rs. 2,00,000/- to M/s. K.M. Scientific Research Centre. It is also common ground that the said institution at the material time was approved by the prescribed authority under provisions of section 35(1)(ii) of the Act.
2. The impugned notice was issued by the Commissioner on the ground that by a subsequent notification dated 2-1-1986, Government of India had withdrawn its earlier notification granting approval to the said institution under section 35(1)(ii) with retrospective effect. At this stage the petitioners filed this petition which was admitted on 5-12-1987.
3. Needless to mention that the scope of powers of this Court under Article 226 of the Constitution of India is limited. The Court will interfere only if the Commissioner is found to have no jurisdiction to issue the notice or if the basis on which he issues the notice is patently wrong.
4. Section 263(1) at the material time i.e. on the date when the impugned notice was issued by the Commissioner read thus :
Revision of orders prejudicial to revenue.
263(1) : The Commissioner may call for and examine the record of any proceeding under this Act and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or assuming to be made such inquiry as he deems necessary pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
This section was thereafter first amended by the Taxation Laws (Amendment) Act, 1957 with effect from 1-4-1958. This amendment was of not much consequence. The section was again amended by the Finance Act, 1988 with effect from 1-6-1988. By this amendment Explanation to section 263(1) was amended as under :
Explanation : For the removal of doubts it is hereby declared that, for the purposes of this sub-section—
(a) an order passed by the Assessing Officer shall include—
(i) an order of assessment made by the Assistant Commissioner of the Income-tax Officer on the basis of the directions issued by the Deputy Commissioner under section 144A;
(ii) an order made by the Deputy Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on or assigned to him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under section 120;
(b) “record” includes all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) Where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal the powers of the Commissioner under this sub-section shall extend to such matters as had not been considered and decided in such appeal.
The explanation was further amended by Finance Act, 1989 with retrospective effect from 1-6-1988 on the basis of which the explanation (b) to section 263(1) came to be as :
(b) “record” (shall include and shall be deemed always to have included) all records relating to any proceeding under this Act available at the time of examination by the Commissioner.
Evidently one of the conditions for assumption of jurisdiction under section 263 is that the Commissioner considers, on examination of records of any proceeding under this Act, that, any order passed therein is erroneous and prejudicial to interest of revenue. While there is no dispute that this consideration has to be a prima facie consideration only, the dispute is as to the meaning of the expression “the record of any proceeding under this Act”. Whereas according to the petitioners, the expression means the record as it stood at the time the Income Tax Officer had competed the assessment, the department’s case is that the expression means the record as it stood when the Commissioner examined the record.
5. Calcutta High Court in its decision in the case of Ganga Properties v. Income Tax Officer, 118 I.T.R. 447, held that the word “record” in section 263(1) cannot mean “record” as it exists at the time of its examination by the Commissioner. It means the “record” as it stands at the time the order was passed by the Income Tax Officer. Facts in that case were that the Income Tax Officer had completed the assessment without waiting for the valuer’s report as the assessment was going to be barred by limitation. On receipt of the valuer’s report subsequently the Commissioner consideration that the assessment made by the Income Tax Officer was erroneous. The Court held that the section gave jurisdiction to the Commissioner only when the order was erroneous on the basis of the “record” as it stood when the Income Tax Officer completed the assessment and not as it stood as the time of its examination by the Commissioner. The order had become erroneous, if at all, it was held by reason of subsequent event.
6. It is true that Madras High Court in Commissioner of Income Tax v. Lakshmi Narayan, 157 I.T.R. 816 upheld the order of the Commissioner under section 263 revising the order for a later year on the basis of High Court’s order revising the Tribunal’s order for an earlier year. It is also true that Madhya Pradesh High Court in Commissioner of Income Tax v. Shriram Development Company, 159 I.T.R. 812 upheld the order of the Commissioner revising the assessment on the basis of a subsequent decision of that High Court in some other case. It is, however, to be borne in mind that the subsequent event in both the cases was the decisions of High Court and judicial pronouncements merely declare the law as it has always stood. In fact for this very reason Madhya Pradesh High Court distinguished and not dissented from the Calcutta decision.
7. No doubt, Madras High Court had an occasion to refer to and interprete the meaning of the word “record” in Kutty Flush Doors and Furniture Co. (P) Ltd. v. The State of Tamil Nadu, 57, S.T.C. 74. Since however neither the scheme of Tamil Nadu Sales Tax Act nor the corresponding provisions are available to the Court, it is not possible to derive any support either way from the said decision. Moreover, it is seen from the discussion in the Calcutta decision that Gujarat and Punjab High Courts in State of Gujarat v. Chelabhai Bhanabhai Prajapati, (1974)33 S.T.C. 147 and Jagatjit Distilling and Allied Industrial Ltd. v. State, (1971)28 S.T.C. 709 had following certain Supreme Court decision also taken the view that power of revision could not be exercised with reference to material not available to the assessing authority.
8. Having regard to the above discussion, I am inclined to proceed on the basis that “record” for the purpose of section 263 as it stood at the material time meant and referred to the record of proceeding as it stood before the Income Tax Officer when he passed the order sought to be revised.
9. Section 263 was amended by Direct Tax Laws (Amendment) Act, 1987 with retrospective effect from 1-4-1988. However, that amendment is not relevant in this case. The section was again amended by the Finance Act, 1988 with effect from 1-6-1988. By this amendment explanation (b) was inserted reading as:
(b) “record” includes all records relating to any proceeding under this Act available at the time of examination by the Commissioner.
It was amended in the present form by the Finance Act, 1989 with retrospective effect from 1-6-1988. In the present form it reads as under :
(b) “record” (shall include and shall be deemed always to have included) all records relating to any proceeding under this Act available at the time of examination by the Commissioner.
10. Superficially looked at, the explanation read in the present form is, perhaps, capable of supporting the department’s case that the “record” in sub-section (1) means “record” as available to the Commissioner at the time of examination and that it should always mean so. The catch, however, lies in that the legislature in its wisdom amended the Explanation (b) though in the widest possible term with retrospective effect from 1-6-1988. This date is also the with effect from which the explanation (b) itself was inserted. The expression “record” having been given an artificial meaning what requires to be examined is what does the expression “record” mean in terms of explanation (b) and the date from which it would so mean. For the present there is no serious dispute that after the expression “record” is defined by explanation (b) in the present form, the record for the purpose of sub-section (1) of section 263 would and should mean record available at the time of its examination by the Commissioner. The Explanation (b) originally inserted with effect from 1-6-1988 did not have any deeming effect. The result was that it was to operate from the date of its insertion i.e. 1-6-1988. i.e. in cases where the Commissioner happened to examine the “record” on or after that date for the purpose of section 263(1). However , the subsequent amendment has given explanation (b) a deeming effect. If one does not keep in mind the date from which explanation (b) was inserted and the date from which the deeming provision in the explanation has been made retrospectively operative, one may not find any difficult in accepting the Department’s case as to the meaning of the word “record”. However, the closer examination of the provision makes it clear that deeming provision in explanation (b) having been made retrospectively operative from 1-6-1988, the date on which explanation (b) was inserted, the artificial meaning given to the word “record” is applicable only when the Commissioner happens to examine the record for the purpose of section 263(1) on or after 1-6-1988. And this is not without good reason. Explanation (b) having been inserted with effect from 1-6-1988, any amendment retrospective or otherwise of explanation (b) could not possibly be effective from a date earlier than the explanation (b) itself was brought in the statute. It is not for the Court to say what would have been the effect if explanation (b) itself was inserted in the sub-section with a deeming clause such as if it was deemed to have been always there in the statute book. Since in the case herein, the notice under section 263(1) issued on 19-1-1987 and on the basis of material which became a part of “record” subsequent to the completion of assessment of 1982-83, I have to hold that the assumption of jurisdiction by the Commissioner under section 263(1) was not proper.
11. Moreover, the government notification dated 2-1-1986 withdrawing the earlier notification whereby the particular institution was approved under section 35(ii) with retrospective is not valid. In view of the judgment of this Court dated 16-3-1990 in Writ Petition No. 1653 of 1986. It was held in that case that a notification of this nature issued by Central Board of Direct Taxes with retrospective effect was invalid as the Board had no power to withdraw an approval of this kind retrospective effect. Therefore, such a withdrawal of earlier notification can not provide a sound or reasonable basis for the Commissioner to consider the allowance of petitioners’ claim under section 35(1)(ii) to be erroneous.
12. Considered from any point of view, it has to be held that the impugned notice was not valid. The notice is hereby quashed. Rule is accordingly made absolute in terms of prayer clause (a). No order as to costs.
