Commissioner of Income-Tax, Bihar and Orissa v. Maharaja Pratapsingh Bahadur of Gidhaur

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeal No. 650 of 1957

Decision Date: 29 November 1960

Coram: M. Hidayatullah, J.L. Kapur, J.C. Shah

On 29 November 1960 the Supreme Court of India delivered a judgment in the appeal brought by the Commissioner of Income‑Tax for the Provinces of Bihar and Orissa against Maharaja Pratapsingh Bahadur of Gidhaur. The judgment was authored by Justice M. Hidayatullah and was heard by a bench comprising Justices M. Hidayatullah, J. L. Kapur and J. C. Shah. The citation of the decision is reported as 1961 AIR 1026 and also appears in the Supreme Court Reports, volume two, page 760. Subsequent citations of the case appear in later reports, including the 1965 and 1978 Supreme Court law reports.

The dispute arose from income‑tax assessments made under the Indian Income‑Tax Act of 1922, as amended by the Income‑Tax and Business Profits Tax (Amendment) Act of 1948. The respondent, the Maharaja, derived agricultural income from his zamindari estates and, for the assessment years 1944‑45 through 1947‑48, the tax authorities chose not to include in his assessable income the interest that he had received on arrears of rent. This approach had been supported by a decision of the Patna High Court but was later overturned by the Privy Council.

On 8 August 1948 the Income‑Tax Officer issued notices under section 34 of the 1922 Act to assess the escaped income that had not been taxed earlier. At the time the officer issued those notices, the law did not require that the matter be referred to the Commissioner for approval, and consequently the assessments were completed on the basis of the notices that had been issued. Subsequently, however, the Parliament passed the Income‑Tax and Business Profits Tax (Amendment) Act of 1948 (Act 48 of 1948), which received the Governor‑General’s assent on 8 September 1948. That amending Act substituted a new provision for section 34, introducing a proviso that required the Income‑Tax Officer to record his reasons for issuing a notice and to obtain the satisfaction of the Commissioner that the case warranted such a notice. The amendment also made the new provision retrospective by declaring that it would be deemed to have come into force on 30 March 1948.

The Commissioner contended that, notwithstanding the retrospective effect of the amendment, the assessments and the earlier notices remained valid because section 6 of the General Clauses Act of 1897 saved them from being invalidated by subsequent legislative changes. The Court examined whether section 6 of the General Clauses Act applied in this situation, considering the explicit intention expressed in the 1948 amendment. The Court held that the intention of Parliament, as reflected in the amended provision, was to impose the new procedural requirement on all notices issued after the deemed commencement date, and that this intention was inconsistent with the saving provision of the General Clauses Act. Consequently, the Court concluded that section 6 of the General Clauses Act could not be invoked to preserve the validity of the notices issued on 8 August 1948 without the Commissioner’s approval. The judgment further affirmed that both the notices and the assessments that were based upon them were invalid because they did not comply with the procedural conditions introduced by the amendment.

The amendment to the Income‑tax Act expressly stated that the provision was deemed to have come into force on 30 March 1948. In applying this amendment, the Court distinguished the earlier decision in Lemm v. Mitchell, [1912] A.C. 400, 761. The Court further held that the notices issued by the Income‑tax Officer on 8 August 1948, together with the assessments that were made on the basis of those notices, were invalid. The principle that the notices and assessments were void was applied by reference to the ruling in Venkatachalam v. Bombay Dyeing & Mfg. Co., Ltd., [1959] S.C.R. 703.

The judgment concerned Civil Appeal No. 650 of 1957, which was an appeal by the Commissioner of Income‑tax filed under a certificate against the order of the Patna High Court dated 13 July 1956 in Miscellaneous Judicial Case No. 665 of 1954. The appeal was heard on 29 November 1960, and the opinion of the Court was delivered by Justice Hidayatullah. The appeal arose from two questions of law that the Tribunal had referred to the Court under section 66(1) of the Income‑tax Act, both of which were answered in the negative. The first question asked whether, in the facts of the case, the assessment proceedings had been validly started under section 34 of the Indian Income‑tax Act. The second question sought to determine, if the assessments were proper, whether the amount that the assessee received as interest on arrears of agricultural rent should have been included in his taxable income. The respondent, Maharaja Pratapsingh Bahadur of Gidhaur, derived agricultural income from his zamindari estate for the assessment years 1944‑45 through 1947‑48. When his income was assessed for tax, the revenue authorities did not add the interest received on arrears of rent to his assessable income, apparently following the earlier decision of the Patna High Court. After the Privy Council overturned that decision in Commissioner of Income‑tax v. Kamakhya Narayan Singh, the Income‑tax Officer issued notices under section 34 of the Indian Income‑tax Act on 8 August 1948 to recover the omitted income. The corresponding assessments were completed on 26 August 1948, after the returns had been filed. At the time the notices were issued, the Income‑tax Officer had not obtained the Commissioner’s approval, because the original wording of section 34 did not require such approval. Section 34 was subsequently amended by the Income‑tax and Business Profits Tax (Amendment) Act, 1948 (No. 48 of 1948), which received the Governor‑General’s assent on 8 September 1948. The assessee’s appeals to the Appellate Assistant Commissioner were decided on 14 and 15 September 1951, and no issue was raised then regarding the validity of the notices under section 34. The question of whether the notices were valid without the Commissioner’s approval first came before the Tribunal, where the Accountant Member ruled the notices to be invalid, while the Judicial Member held the opposite view. The President of the Tribunal agreed with the Accountant Member that the notices were invalid.

The Tribunal concluded that the notices issued under section 34 were invalid and therefore directed that the assessments based on those notices be set aside. After reaching this conclusion, the Tribunal formally stated the case before it and identified two specific questions for determination, both of which had been reproduced in the earlier part of the record. The High Court subsequently adopted the conclusions reached by the majority of the Tribunal and granted a certificate of appeal, upon which the present appeal was filed. It was noted that, before the amendment effected by Act No. 48 of 1948, section 34 did not impose any obligation on the Income‑Tax Officer to obtain the Commissioner’s prior approval before issuing a notice under that provision. The amending Act, in its first section, declared that sections 3 to 12 of the amending Act were to be treated as having come into force on 30 March 1948, thereby giving those provisions retrospective effect. Section 8 of the amending Act replaced the original section 34 with a new provision and, apart from textual modifications that were not relevant to the present dispute, inserted a proviso stating that “Provided that – (1) the Income‑Tax Officer shall not issue a notice under this sub‑section unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons that it is a fit case for the issue of such notice.” The central issue therefore turned on whether this proviso rendered the notices that had been issued void. The Commissioner argued that sections 6(b) and 6(c) of the General Clauses Act preserved both the assessments and the notices. In support of this position, the Commissioner relied on decisions of the Privy Council in Lemm v. Mitchell, Eyre v. Wynn‑Mackenzie and Butcher v. Henderson. The Tribunal observed that the latter two cases were not applicable, but that the Privy Council decision in Lemm v. Mitchell was strongly relied upon. In that case, an earlier action had been commenced when an ordinance had abolished the right of action for criminal conversation; the action had concluded in the defendant’s favour and no appeal was pending. The Privy Council held that the later revival of the right of action did not give the plaintiff a fresh right to sue, nor did it expose the defendant to double jeopardy, unless the statute expressly granted such a right in clear terms. The Tribunal therefore considered that the Privy Council case was fundamentally different from the present matter. It was further noted that section 6 of the General Clauses Act provides that when an Act repeals any enactment, the repeal shall not, unless the repealing Act indicates a contrary intention, affect the previous operation of the repealed enactment, any act done under it, or any right, obligation or liability accrued thereunder, and that legal proceedings may continue as if the repealing Act had not been enacted. The Tribunal then examined whether the amending Act merely repealed the original section 34 and substituted a new provision, or whether the retrospective operation of the amendment indicated a different legislative intention that would preclude the application of section 6 of the General Clauses Act.

The Court observed that, although the repeal might not have affected the operation of the original provision by virtue of section 6, the amending Act proceeded further. The amendment, as indicated by the authorities (1) [1912] A.C. 400. (2) (1896) 1 Ch. 135. (3) (1868) L.R. 3 Q. B. 335., repealed the original s. 34, not from the date on which the Act received the Governor‑General’s assent, but from the expressly stated date of 30 March 1948. In its place, the amendment substituted a new section that expressly incorporated the proviso that had been previously mentioned in the discussion. The amending Act stipulated that this substituted section should be deemed to have come into force on 30 March 1948, thereby giving the repeal a retrospective effect. That retrospective intention signaled a different legislative purpose, which excluded the operation of section 6 in this particular case. The Court noted that all the notices were issued on 8 August 1948, a date when the statute still required the Income‑Tax Officer to obtain the Commissioner’s prior approval before issuing any notice. Because the required prior approval had not been obtained, the Court concluded that the notices issued on that date were invalid and could not stand under the law. The Court then applied the principle previously set out in Venkatachalam v. Bombay Dyeing & Manufacturing Co. Ltd. (1), finding it equally relevant to the present facts. No question of law was raised before the Court, as the earlier decision in Narayana Chetty v. Income‑Tax Officer (2) made clear that the proviso was not of a mandatory character. Moreover, the Court observed that sufficient time remained for fresh notices to be issued, and it could not understand why the original notices were not withdrawn and replaced with new ones. For these reasons, the Court agreed with the High Court’s conclusions, dismissed the appeal, and ordered that the costs be borne by the appellant. Consequently, the appellate petition was dismissed, and the appellant was ordered to pay the costs of the proceedings, as reported in (1) [1959] S.C.R. 703 and (2) [1959] 35 I.T.R. 388.