Commissioner Of Income-Tax, Madras vs Janaba Mohammad Hussain Nachiar Ammal

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 12 December 1961

Coram: Das, Kapur, Sarkar, Hidayatullah, Raghubar Dayal

In the matter titled Commissioner of Income‑Tax, Madras versus Janaba Mohammad Hussain Nachiar Ammal, the Supreme Court of India delivered its judgment on 12 December 1961. The Bench consisted of Justices Das, Kapur and Sarkar, each of whom rendered a separate opinion. Justices Hidayatullah and Raghubar Dayal also addressed the appeal in a related judgment concerning S. C. Prashar v. Vasantsen Dwarkadas. Justice S. K. Das recorded that the factual background of the case had been set out by his learned brother, Justice Kapur, and, agreeing with that exposition, found no need to repeat the facts. He noted that the assessment year in dispute was 1942‑43 and that the Department had issued a notice on 25 July 1949 under section 34 of the Indian Income‑Tax Act, 1922. The assessee argued that this notice was invalid because, at the time the Department sought to revive the assessment, its authority was governed by the earlier version of section 34, which limited the period for assessment to four years in cases of failure to file a return. That four‑year limitation had expired on 31 March 1947, and the Amending Act of 1948 (Act XLVIII of 1948), which became effective on 30 March 1948, introduced an eight‑year period that the assessee contended could not be applied retroactively. The High Court affirmed the assessee’s contention, expressly stating that the new eight‑year rule prescribed by the amended section 34 could not be invoked where the original four‑year limitation had already lapsed before the amendment took effect on 30 March 1948. The Department’s counsel then relied on section 31 of Act XXV of 1953 to argue for the validity of the 25 July 1949 notice. Justice Das observed that section 31 of the 1953 Act neither amended nor altered section 34, and therefore the question of the notice’s validity must be decided with reference to the amended section 34. He concluded that the extended eight‑year limitation period could not be applied to the assessee once section 34 had been amended, and that the High Court had correctly resolved the issue. Accordingly, Justice Das dismissed the appeal and ordered costs.

Justice Kapur subsequently noted that the present proceeding constituted an appeal against the judgment and order of the High Court of Madras. He identified the appellant as the Commissioner of Income‑Tax and the respondent as the assessee, indicating that the parties were challenging the High Court’s determination on the limitation period applicable to the assessment of income for the year 1942‑43. The appeal therefore sought to overturn the High Court’s finding that the Department’s reliance on the amended eight‑year limitation period was untenable, and it placed the matter before the Supreme Court for final determination.

The assessee for the assessment year 1942‑43 was the wife of Sheikh Abdul Khader, who lived abroad in Bangkok from September 1940 to July 1947. During his stay abroad he sent money on his wife's behalf through an agent, and the total amount remitted in the relevant year amounted to Rs 9,180. The respondent did not file any income‑tax return, although under section 4(2) of the Income‑Tax Act the amount was taxable as her income. In 1949 the Income‑Tax Officer, having received definite information that this income had escaped assessment, issued a notice under section 34 of the Act as amended by the 1948 Amendment Act. The assessment based on that notice was confirmed by the Appellate Assistant Commissioner, and a further appeal to the Income‑Tax Appellate Tribunal, Madras, was also dismissed. Consequently the matter was referred to the High Court of Madras, which was asked to consider whether the proceedings under section 34 initiated on 25 July 1949 were valid. The High Court held that the eight‑year limitation prescribed by section 34, as amended by the 1948 Act, did not apply because the case involved a failure to file a return. The Court observed that the four‑year period prescribed before the amendment had already expired before 30 March 1948, when the amendment to section 34 was enacted. It further held that section 31 of the 1953 Amending Act was inapplicable, and therefore answered the reference question in the negative. The Commissioner of Income‑Tax appealed this judgment to this Court, which applied the decision in C.A. No. 705/57 (S C Prashar v Vasantsen Dwarkadas) delivered today. The Supreme Court dismissed the appeal with costs, confirming that the High Court had granted the certificate to the appellant on the condition that he would pay the costs. In addition, the Court noted that the respondent had received Rs 9,180 in the year 1941‑42 from her husband in Siam, that the amount was taxable, that a notice dated 25 July 1949 required her to file a return, and that she was assessed on 24 October 1949, an assessment she unsuccessfully appealed.

In the present dispute, the Appellate Tribunal, at the request of the respondent, referred a specific question to the Madras High Court for decision. The question was whether the proceedings initiated on 25 July 1949 under section 34 of the Indian Income‑Tax Act, which sought to assess the sum of Rs 9,180 that had escaped assessment in the year 1942‑43 because the taxpayer failed to file a voluntary return, were valid under law. The Madras High Court answered this question in the negative, and consequently the revenue authorities filed an appeal against that decision. Section 34 of the Act contains provisions for assessment and reassessment where income for any year has not been fully assessed in the relevant assessment year for the reasons enumerated in the section. The Court noted that a detailed discussion of those reasons was unnecessary for the present appeal. Sub‑section (1) of section 34 prescribes the period within which a notice calling for a return of escaped income may be served, while sub‑section (3) prescribes the period within which the assessment may be made. Section 34 was amended by the Income‑Tax and Business Profits Tax (Amendment) Act, 1948, which was passed on 8 September 1948 but brought into force retrospectively from 30 March 1948. It was not contested that, under the pre‑amendment version of section 34, the time limit for issuing the notice and making the assessment in this case had expired on 31 March 1947, that is, four years after the escaped income year 1942‑43. It was also uncontested that, under the amended version of section 34, the notice could be served and the assessment made within eight years from the end of that year, meaning by 31 March 1951. Accordingly, the notice and the assessment order at issue would be valid if the amended version of section 34 applied. The appellant maintained that the amendment was applicable, whereas the High Court held that because the time limit had already elapsed under the existing law, the amendment could not be given retrospective effect to validate the notice and the assessment. Subsequently, on 24 May 1953, Parliament enacted the Income‑Tax (Amendment) Act, 1953 (XXV of 1953), which was brought into force retrospectively from 1 April 1952. This Act introduced section 31, which, in the opinion of the Court, rendered section 34 as amended by the 1948 Act applicable to the present proceedings. The Court expressed inability to accept the High Court’s contrary view and regret at not understanding the reasoning behind it. Although section 31 also amended sub‑section (3) of section 34 to include provisions concerning the time of issuing the notice, the Court indicated that this additional amendment would not be considered in the present appeal.

Section 31 of the Income‑tax (Amendment) Act, 1953 was expressed in the following terms: the provision declared that the provisions of sub‑sections (1), (2) and (3) of section 34 of the principal Act shall be deemed always to have applied to any assessment or reassessment for any year ending before the first day of April 1948, in every case where proceedings in respect of such assessment or reassessment were commenced under the said sub‑sections after the eighth day of September 1948. It further stipulated that any notice issued in accordance with sub‑section (1) or any judgment or order of assessment completed pursuant to such notice within the time specified in sub‑section (3), whether before or after the commencement of the Indian Income‑tax (Amendment) Act, 1953, shall, notwithstanding any judgment or order of any court, appellate tribunal or income‑tax authority to the contrary, be deemed to have been validly issued or completed, as the case may be. Accordingly, no such notice, assessment or reassessment could be called into question on the ground merely that the provisions of section 34 did not apply or purport to apply to an assessment or reassessment for any year prior to the first day of April 1948. The court noted that sub‑section (2) of section 34 mentioned in this provision did not arise in the present appeal and could therefore be omitted from consideration.

The court observed that it was plainly evident that section 31 of the 1953 Act applied sub‑sections (1) and (3) of section 34 of the Income‑tax Act, 1922—as it stood after the amendment of 1948—to assessment proceedings that were commenced after 8 September 1948, and that the validity of those proceedings depended on the amended version of the section. The court further explained that the 1948 Amending Act had been passed on 8 September 1948 but was given retrospective effect from 30 March 1948. The amendment had repealed the pre‑existing version of section 34 and substituted a new version. Consequently, the repealed version of section 34 could not apply to proceedings that began after its repeal, and there was no question of applying the old law to such later proceedings. However, where the proceedings related to a period during which the earlier law had been in force, a doubt could arise as to which law should govern. Section 31 was enacted expressly to remove that doubt and to deem that the amended section 34, as it stood after the 1948 amendment, always applied to those proceedings, even when the matters concerned a period before the amendment’s own commencement. The expression “shall always be deemed to have applied” was therefore understood to emphasise that the amended provision was to be treated as continuously applicable, irrespective of the actual date of the amendment.

The Court observed that the latter portion of section 31 reinforces the same interpretation. It provides that no notice or order of assessment may be challenged on the basis that section 34 did not apply to an assessment for a year preceding 1 April 1948. The provision of section 34 that is intended here must be the version amended in 1948; if it were not, the reference would be to the pre‑existing section, which, having been repealed, would not have applied to an assessment for a year ending before that date, and no question of its inapplicability could arise. Consequently, the Court concluded that, under section 31 of the 1953 Act, the provisions of sub‑section (1) and sub‑section (3) – sub‑section (2) being irrelevant – of section 34 of the principal Act, as amended in 1948, are to be applied and are to be deemed always to have applied to assessment proceedings concerning a year that ended before 1 April 1948, provided that such proceedings were commenced after 8 September 1948. A notice issued and an order of assessment made in those proceedings are therefore held to be valid when the notice is issued “in accordance with sub‑section (1)” of section 34 as it stood after the 1948 amendment and when the assessment is “completed in pursuance of such notice within the time specified in sub‑section (3)” of the same section. The Court noted that the notice and assessment in the present case satisfy all of these conditions; accordingly, section 34 as amended in 1948 applies. Viewed in that light, the notice and assessment order are unexceptionable. The Court acknowledged that, at the time the notice was issued and the assessment made, the period within which either could be done under the law as it existed before the 1948 amendment had already expired. It was recognised that, had the 1953 Act not been enacted, the law might have applied differently. The Court also referred to the Calcutta Discount Co. case, observing that, by itself, the 1948 amendment of section 34 would not have permitted assessment proceedings for the year 1942‑43 to be started in 1949, because under the earlier law the time to issue a notice and to make an assessment for that year had lapsed before the amendment came into force. However, the Court held that this point is irrelevant to the present matter. No issue of that nature arises here. The legislature possessed the unquestionable authority to give the 1948 amendment of section 34 retrospective effect, thereby allowing it to apply to an assessment, to issue a notice, and to make an assessment for the year 1942‑43 despite the expiry of the time limits fixed by the pre‑existing law before the amendment took effect. The real question, therefore, is one of statutory interpretation: whether the legislature intended to confer such retrospective operation. The Court indicated that section 31 of the 1953 Act appears to provide that retrospective operation.

Section 31 of the 1953 Act clearly confers a retrospective effect on section 34 of the principal Act as it was amended in 1948. The provision plainly makes the amended section 34 applicable to assessments concerning years that ended before the amendment came into force. It does not limit the application of the amended section 34 to those assessments only when the time for issuing the notice or making the assessment under the earlier law had not yet expired. According to its language, the amended section 34 applies to any assessment for any year ending before the first day of April 1948 whenever proceedings were commenced after the eighth day of September 1948. No justification can be found in the wording of section 31 to interpret it as restricting the amended section 34 to cases where the period for issuing notice had not elapsed. Similarly, the provision does not require that the time for making the assessment under the earlier law also remain unexpired. The later part of section 31 independently leads to the same conclusion. It declares that any notice issued under sub‑section (1) or any assessment completed pursuant to such notice within the time specified in sub‑section (3) shall be valid. Consequently, all notices and assessment orders relating to years ending before 1 April 1948, when proceedings were initiated after 8 September 1948, must conform to the provisions of the amended section 34. Thus a notice and an assessment order that are valid under the 1948 amendment of section 34 remain valid even though the time limits prescribed by the pre‑amendment version of section 34 may have expired. In my opinion, for these reasons, section 34 of the principal Act as amended in 1948 applies to both the notice issued and the assessment order made in the present case. Both the notice and the assessment order are therefore valid under the amended provision. The High Court should have answered the question framed in the affirmative. Accordingly, I allow the appeal and set aside the order of the High Court. The appellant will, however, pay the respondent’s costs of this appeal as agreed in the certificate on which the appeal was admitted. In accordance with the majority opinion, the appeal is allowed and the appellant shall pay the respondent’s costs as the parties had agreed.