Commissioner Of Income-Tax, Madras vs Janabha Muhammad Hussainnachiar Ammal

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 509 of 1958

Decision Date: 12 December, 1962

Coram: S.K. Das, J.L. Kapur, A.K. Sarkar, M. Hidayatullah, Raghubar Dayal

In the matter titled Commissioner of Income‑Tax, Madras versus Janabha Muhammad Hussainnachiar Ammal, the Supreme Court delivered its judgment on 12 December 1962. The opinion was authored by Justice S. K. Das and was decided by a bench consisting of Justices S. K. Das, J. L. Kapur, A. K. Sarkar, M. Hidayatullah and Raghubar Dayal. The case is reported in 1963 AIR 1401 and 1964 SCR (1) 137. The dispute concerned the assessment of escaped income where the assessee had failed to file a return, and whether a notice issued under section 34 of the Indian Income‑Tax Act, 1922, as amended, was valid retrospectively.

The factual backdrop was that for the year of account corresponding to the assessment year 1942‑43 the respondent had received an amount of Rs 9,180 but had not filed any return of income. On 25 July 1949, after receiving definite information that this income had escaped assessment, the Income‑Tax Officer issued a notice to the respondent invoking section 34 of the Indian Income‑Tax Act, 1922 as amended by the Indian Income‑Tax and Business Profits Tax (Amendment) Act, 1948. The assessment based on that notice was completed on 24 October 1949. The respondent challenged the validity of the notice and the subsequent assessment, arguing that the authority to revive the assessment should be governed by the pre‑1948 version of section 34, which prescribed a limitation period of four years for cases of failure to file a return. According to that view, the four‑year period had expired on 31 March 1947, and since the Amending Act of 1948 became effective only on 30 March 1948, the extended eight‑year limitation could not be applied.

The Revenue contended that the notice was valid, additionally relying on section 31 of the Indian Income‑Tax (Amendment) Act, 1953, which they argued validated the notice irrespective of the earlier limitation. The Court’s majority, consisting of Justices Sarkar, Hidayatullah and Dayal, held that the amendment made by the 1948 Act to section 34 applied to the present proceedings and that the notice dated 25 July 1949 was therefore valid. In contrast, Justices Das and Kapur dissented. They observed that the eight‑year limitation introduced by the 1948 amendment could not be invoked where the case involved a failure to submit a return and the earlier four‑year period had already lapsed prior to 30 March 1948. They further held that section 31 of the 1953 Amendment did not broaden the scope of the amended section 34 and consequently did not validate the 1949 notice. Justice Sarkar, however, noted that by virtue of section 31 of the 1953 Amendment, a notice and an assessment order issued for a year ending before 1 April 1948, when the proceedings were commenced after 8 September 1948, would be valid if the notice complied with sub‑section (1) of the post‑amendment section 34 and the assessment was completed within the period prescribed by sub‑section (3).

The Court explained that where the relevant assessment year ended before 1 April 1948 and the proceedings were begun only after 8 September 1948, the notice would be considered valid provided it complied with sub‑section (1) of section 34 as it existed after the 1948 amendment and the assessment was completed pursuant to that notice within the period prescribed in sub‑section (3). The Court observed that the notice and the assessment in the present matter satisfied each of those requirements; consequently, the amendment to section 34 made in 1948 applied. Moreover, the Court held that a notice and an assessment order that are valid under the 1948‑amended section 34 remain valid even if the time limit that applied under the pre‑amendment version of section 34 had already expired.

Justice Hidayatullah and Justice Raghubar Dayal added that the action in this case was taken after the 1948 amendment, which allowed the revenue to levy tax on income, profits and gains that had escaped assessment because the assessee failed to file a return, provided a notice was served within eight years of the close of the relevant year. They noted that the notice issued in 1949 fell within eight years of the 1942‑43 year and was therefore properly issued. The Court relied on the decision in S. C. Prashar, Income‑tax Officer v. Vasantsen Dwarkadas, [1964] Vol. 1 S.C.R. 29.

The matter before the Court was a civil appeal numbered 509 of 1958, filed against the judgment and order dated 22 February 1956 of the Madras High Court in case referred No. 66/52. The appeal was heard on 12 December 1962. Counsel for the appellant and counsel for the respondents were present. The judgments were delivered by Justice S. K. Das, Justice J. L. Kapur, and Justice A. K. Sarkar, each delivering separate opinions. The opinion of Justices Hidayatullah and Raghubar Dayal was delivered by Justice Hidayatullah.

Justice S. K. Das stated that the factual background of the appeal had already been set out by Justice Kapur, and because he concurred with that exposition, he would not repeat the facts. He recapped that the assessment year in dispute was 1942‑43 and that the proceedings under section 34 of the Indian Income‑Tax Act, 1922, were commenced by issuing a notice on 25 July 1949. The assessee argued that this commencement was invalid because the department’s power to revive the assessment was governed by the earlier version of section 34, which imposed a four‑year limitation for cases of failure to file a return. That four‑year period had expired on 31 March 1947, and since the Amending Act of 1948 (Act XLVIII of 1948) came into force only on 30 March 1948, the assessee contended that the eight‑year limitation introduced by the amendment could not be applied. The Madras High Court accepted this contention, holding that the new eight‑year limitation did not apply to the assessee’s case, which was an instance of failure to submit a return when the earlier four‑year limitation had already lapsed.

It was observed that the four‑year limitation period for cases of failure to file a return had already expired long before the amendment that introduced an eight‑year period came into force on 30 March 1948. The Department’s counsel then relied on section 31 of Act XXV of 1953, asserting that the notice dated 25 July 1949 was valid. However, the counsel had to acknowledge that section 31 of the 1953 Act neither enlarged the scope of the amended section 34 nor amended it in any way. Consequently, the validity of the 1949 notice still had to be examined according to the provisions of the amended section 34. Because the original four‑year limitation applicable to the assessee had ceased to operate before the amendment became effective, section 31 did not influence the central question of whether the extended eight‑year limitation could be applied. Relying on the reasoning set out in S. C. Prashar, Income‑tax Officer v. Vasantsen Dwarkadas (C. A. 705/1957), the Court held that the Madras High Court had correctly answered the issue presented to it. Accordingly, the appeal was dismissed and costs were awarded.

Justice Kapur noted that the present appeal concerned the judgment and order of the Madras High Court. The appellant was the Commissioner of Income‑tax and the respondent was the assessee for the assessment year 1942‑43. The respondent was the wife of Sheikh Abdul Khadar, who resided abroad in Bangkok from September 1940 to July 1947. During that period he remitted money on behalf of his agent for the benefit of the respondent, the total amount for the year amounting to Rs 9,180. The respondent failed to file a tax return, which she was required to do, and therefore the sum became taxable under section 4(2) of the Income‑tax Act. In 1949, after the Income‑tax Officer received definite information that the income had escaped assessment, a notice was issued under section 34 of the Act as amended by the Amending Act of 1948. The assessment was confirmed by the Appellate Assistant Commissioner, and a further appeal to the Income‑tax Appellate Tribunal, Madras, was also rejected. The matter was then referred to the High Court, which was asked to determine whether the proceedings initiated on 25 July 1949 under section 34 to assess the amount of Rs 9,180, which had escaped assessment because of the failure to file a voluntary return, were valid in law. The High Court held that the eight‑year limitation prescribed by the amended section 34 did not apply to this case, which was one of failure to submit a return, and that section 31 of the 1953 amendment was not relevant to the issue.

In the earlier proceedings, the Court observed that the requirement to submit a return had not been complied with and that the four‑year limitation period had already expired before 30 March 1948, the date on which the amendment to section 34 was introduced by the Amending Act of 1948. The Court further held that the provision of section 31 contained in the Amending Act of 1953 did not apply to the present case, and consequently the question presented to the Court was answered in the negative. The Commissioner of Income‑Tax consequently filed an appeal against that judgment and order before this Court. The matter was decided in accordance with the precedent set in C.A. No. 705/57 (S. C. Prashar, Income‑Tax Officer v. Vasantsen Dwarkadas), the judgment in that case having been delivered today. Accordingly, the appeal was dismissed and costs were awarded. The High Court had earlier granted a certificate to the appellant on the explicit condition that he would pay the costs of the appeal regardless of any agreement he might have reached, and that condition was upheld.

SARKAR, J. described the respondent in this appeal as the assessee, a woman married to Sheikh‑Abdul Khader, who at the time lived in Siam. In the fiscal year 1941‑42 she received from her husband the sum of Rs 9,180, which undeniably constituted “income” in her hands under section 4(2) of the Income‑Tax Act, 1922. She failed to file any return in respect of that amount. On 25 July 1949 a notice issued under section 34 of the Act required her to file a return, and she was subsequently assessed on the same sum on 24 October 1949. She appealed the assessment, but the appeal was unsuccessful and the assessment stood. At her request, the Appellate Tribunal referred to the Madras High Court the question: whether the proceedings initiated on 25 July 1949 under section 34, intended to assess the escaped income of Rs 9,180 for the year 1942‑43 that had not been voluntarily returned, were lawful. The High Court answered this question in the negative, prompting the revenue authorities to appeal. Section 34 provides for assessment and re‑assessment where income for a particular year has not been fully assessed in the relevant assessment year for the reasons specified in the provision. Sub‑section (1) of section 34 specifies 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. This section was amended by the Income‑Tax and Business Profits Tax (Amendment) Act, 1948, which received parliamentary assent on 8 September 1948 but was enacted retrospectively with effect from 30 March 1948. It is undisputed that, prior to the amendment, the time limit for issuing the notice and making the assessment under section 34 had already expired.

In this case, the Court noted that the original limitation period provided by section 34 had expired on 31 March 1947, which was four years after the year 1942‑43 when the escaped income was first assessable. The Court further observed that there was no dispute that, after the amendment of 1948, section 34 permitted a notice to be served and an assessment to be made within eight years from the end of that year, meaning that the deadline in the present matter was 31 March 1951. Consequently, the notice and the assessment order that were challenged would be valid if the version of section 34 as amended in 1948 were applicable. The appellant argued that the amended provision should indeed apply to the present proceedings. The High Court, however, held that because the prescribed period had already elapsed under the law then in force, the amended section 34 could not be given retrospective operation to validate either the notice or the assessment order. Subsequently, on 24 May 1953 Parliament passed the Income‑Tax (Amendment) Act, 1953 (XXV of 1953), which was made retrospective to 1 April 1952. That Act introduced section 31, which the Court considered to make the 1948‑amended version of section 34 applicable to the proceedings before it. The Court expressed its inability to accept the High Court’s contrary view and conveyed regret at not being able to comprehend the reasons on which that view was based. Section 31 also amended subsection (3) of section 34 to include provisions concerning the time of issuing the notice, but the Court stated that this amendment would not be the subject of consideration in the present appeal. The Court then reproduced the full text of section 31, which declares that subsections (1), (2) and (3) of section 34 shall be deemed always to have applied to any assessment or re‑assessment for any year ending before 1 April 1948, in any case where proceedings under those subsections were commenced after 8 September 1948, and that any notice issued in accordance with subsection (1) or any assessment completed within the time specified in subsection (3) 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. The Court noted that subsection (2) of section 34 does not arise in this appeal and may be excluded from consideration, and concluded that the effect of section 31 was quite clear.

It was observed that section 31 of the 1953 Act incorporates subsections (1) and (3) of section 34 of the Income‑tax Act, 1922 as it existed after the amendment of 1948, and that this incorporation governs assessment proceedings concerning years that ended before 1 April 1948 when those proceedings were started after 8 September 1948. The validity of such proceedings therefore depends on the amended version of section 34. No argument to the contrary had been advanced. The judgment reminded that the 1948 amendment was enacted on 8 September 1948 but was given retrospective effect from 30 March 1948. That amendment repealed the earlier section 34 and replaced it with a new provision. Consequently, the repealed, pre‑existing section 34 could not apply to proceedings that were commenced after its repeal, and there was no issue of applying the old law to those proceedings. However, where the proceedings related to a period during which the former law had been in force, a question could arise as to which provision should govern. Section 31 was enacted expressly to eliminate that uncertainty and to make the post‑amendment version of section 34 applicable to such proceedings. The wording “shall always be deemed to have applied” was intended to stress that the amended section is treated as having applied even to matters concerning periods before the amendment came into force. The latter part of section 31 reinforces this view by stating that no notice or assessment order may be challenged on the ground that section 34 did not apply to an assessment for a year preceding 1 April 1948. The section 34 referred to must therefore be the one amended in 1948; otherwise the reference would be to the pre‑existing provision, which, if not repealed, would have applied to assessments for years ending before 1 April 1948, and no difficulty would arise. Accordingly, the Court concluded that, under section 31 of the 1953 Act, subsections (1) and (3) of section 34, as amended in 1948, are to be applied and are deemed always to have applied to assessment proceedings for a year ended before 1 April 1948 where those proceedings were commenced after 8 September 1948. A notice issued and an order of assessment made in such proceedings are to be regarded as valid provided the notice was issued in accordance with subsection (1) of the amended section 34 and the assessment was completed within the period prescribed in subsection (3) of the same section. The notice and assessment in the present case therefore satisfy all these conditions.

In the present case the facts satisfied every condition that the Court had identified, and therefore the provision of section 34 as it stood after the 1948 amendment was applicable. According to that provision the notice and the assessment order were, without any exception, valid. The Court observed that when the notice was issued and the assessment was made, the period prescribed for either action under the law that existed before the 1948 amendment had already elapsed. The Court noted that, had the 1953 Act not been enacted, the earlier law might have governed the situation. The Court also referred to the decision in Calcutta Discount Co. which held that, by itself, the 1948 amendment of section 34 would not have allowed assessment proceedings for the year 1942‑43 to be started in 1949, because under the previous law the time for issuing a notice and making an assessment for that year had expired before the amendment became effective. The Court declared that this consideration was irrelevant because no such issue arose in the present case. The legislature, the Court said, unquestionably possessed the authority to make section 34 as amended in 1948 apply retrospectively to an assessment for 1942‑43, even though the time limits fixed by the pre‑existing law had expired before the amendment took effect. The real question, the Court explained, was whether the legislature had expressly granted such retrospective operation. The Court found that section 31 of the 1953 Act unmistakably gave section 34, as amended in 1948, retrospective effect. Section 31 plainly extended the amended section 34 to assessments for years that ended before the amendment came into force, without limiting its operation to cases where the time to issue a notice or make an assessment under the earlier law had not yet expired. It applied the amended section 34 to “any assessment for any year ending before the first day of April 1948 where proceedings were commenced after the eighth day of September 1948.” Consequently, any notice and any assessment concerning any year ending before 1 April 1948 were to be regarded as valid if they complied with section 34 as amended in 1948. The Court found no reason, based on the language of section 31, to restrict the operation of the amended section 34 only to cases where the pre‑existing time limits were still open. The latter portion of section 31 independently led to the same conclusion, declaring that any notice issued in accordance with sub‑section (1) or any assessment completed pursuant to such notice within the period prescribed in sub‑section (3) was valid. Accordingly, the Court held that all notices and assessment orders relating to years ending before 1 April 1948, where proceedings had been started after 8 April 1948, must satisfy the requirements of the amended section 34.

In the matter before it, the Court observed that a notice issued and an assessment order made pursuant to section 34 of the principal Act, as amended in 1948, remain valid even though the time limit prescribed by the earlier version of section 34 had already elapsed. Accordingly, the Court held that, for the reasons already explained, section 34 of the principal Act, as it stood after the 1948 amendment, applies to both the notice that was issued and the assessment order that was generated in the present case. Both the notice and the assessment order therefore satisfy the requirements of the amended section and are legally effective. The Court further concluded that the High Court should have responded affirmatively to the question that had been framed before it. Consequently, the Court decided to allow the appeal and to set aside the order that had been passed by the High Court. The appellant was required to bear the costs of the respondent in this appeal, as the parties had previously agreed to that arrangement, a fact that was evident from the certificate on which the appeal had been admitted. The judgment also referred to the earlier decision of Justices Hidayatullah and Raghubar Dayal, which can be found in S. C. Prashar, Income‑tax Officer v. Vasantsen Dwarkadas, at page 29. In accordance with the view of the majority of the judges, the appeal was allowed and the appellant was ordered to pay the respondent’s costs as previously agreed by the parties. The final order thereby confirmed that the appeal was allowed.