Commissioner Of Income-Tax vs Sardar Lakhmir Singh

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

Court: supreme-court

Case Number: Civil Appeals Nos. 214 and 215 of 1958

Decision Date: 12 December 1962

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

In the matter titled Commissioner of Income‑Tax versus Sardar Lakhmir Singh, the Supreme Court delivered its judgment on 12 December 1962. The opinion was authored by Justice J. L. Kapur and the bench comprised Justices J. L. Kapur, S. K. Das, A. K. Sarkar, M. Hidayatullah, and Raghubar Dayal. The citation for the decision is reported in 1963 AIR 1394 and 1964 SCR (1) 148, with several reported references. The case concerned the application of provisions of the Indian Income‑Tax Act, 1922, particularly sections 31 and 34(3), the amendment enacted by the Income‑Tax (Amendment) Act, 1953, and the constitutional guarantee of equality under Article 14 of the Constitution of India.

The facts disclosed that the assessee, Sardar Lakhmir Singh, and his father each filed separate income‑tax returns for the assessment year 1946‑47. The father additionally filed a return in the capacity of Karta of a Hindu undivided family, asserting that the family had ceased to exist and therefore declaring nil income. On 15 March 1951, the Income‑Tax Officer amalgamated the incomes of the father and son and made a single assessment treating the combined amount as the income of a Hindu undivided family, while failing to assess the son individually. The father appealed this assessment, and on 20 March 1953 the Appellate Assistant Commissioner held that no Hindu undivided family existed, set aside the assessment, and ordered a reassessment of both the father and son as individual taxpayers. Consequently, on 27 November 1953 the Income‑Tax Officer issued an assessment against the son as an individual.

The assessee challenged the validity of the assessment on the ground that it was rendered after the statutory period prescribed by section 34(3) of the 1922 Act, which required assessment within four years of the relevant year, meaning the assessment should have been completed by 31 March 1951. The Appellate Tribunal found that the assessment was not barred by the limitation provision, but, at the assessee’s request, referred the question of validity to the High Court. The High Court answered the reference in favor of the assessee, holding the assessment to be permissible. On appeal, the Commissioner contended that the assessment fell within the allowed period because it was saved by the second proviso to section 34(3) as inserted by the 1953 Amendment, and further argued that section 31 of the Amendment Act validated the assessment.

The Supreme Court, by a majority of Justices Das, Kapur and Sarkar, held that the assessment was barred because it was not made within the time limit set by section 34(3). The Court relied on the earlier decision in S. C. Prashar, Income‑Tax Officer v. Vasantsen Dwarkadas (1964) S. C. R. 29. Justice Das and Justice Kapur explained that the second proviso to section 34(3), which became effective on 1 April 1952, did not revive a power of assessment that had already become extinguished by limitation. They further observed that the Commissioner could not invoke section 31 of the Amendment Act, as the question of its applicability was not part of the reference made to the High Court. Justice Sarkar, however, dissenting, expressed a differing view, which is set out in the subsequent portion of the judgment.

The Court examined the second proviso to section 34(3) as amended in 1953 and held that, to the extent it applied to persons other than assessees, the provision was void for violating article 14 of the Constitution. The proviso was intended to preserve assessments of assessees and of those whose assessments resulted from orders issued under section 31 in the cases of those assessees, but it did not extend the same protection to other tax evaders. The Court found that this classification lacked any intelligible differentia that bore a rational connection to the purpose of the statute. In contrast, the opinion of Justices Hidayatullah and Dayal maintained that the assessments were valid and were saved both by the second proviso to section 34(3) as amended in 1953 and by section 31 of the Amending Act of 1953. They argued that the Court was obliged to consider section 31 of the Amending Act even though it had not been mentioned in the reference order or in the High Court’s judgment, because the provisions of section 31 clearly applied to the instant case, given that the proceedings had commenced after 8 September 1948. Moreover, they held that the second proviso to section 34(3) as amended in 1953 was not discriminatory and did not offend article 14. The Court explained that a law dealing with tax evasion could not impose a uniform rule on all defaulters. The class covered by the proviso faced no time limit for assessment, whereas the class outside the proviso was subject to a limit of four or eight years; these constituted two distinct classes, and the differing treatment arose from the different circumstances affecting each class.

The judgment was rendered in civil appellate jurisdiction concerning Civil Appeals Nos. 214 and 215 of 1958, which were appeals from the Patna High Court’s judgment and decree dated 7 May 1957 in M.J.C. No. 263 of 1956. Counsel for the appellants were K‑N Rajagopal Sastri and P D Menon, while counsel for the respondents was S P Varma. The decision was dated 12 December 1962, and separate judgments were delivered by Justices S K Das, J. L Kapur, and A K Sarkar, while the judgment of Justices Hidayatullah and Raghubar Dayal was delivered by Justice Hidayatullah. Justice Das noted that the facts giving rise to the two appeals had already been set out in Justice Kapur’s judgment, and, agreeing with the conclusions reached by Justice Kapur, he saw no need to restate those facts. He recalled that the relevant assessment years were 1946‑1947 and 1947‑1948, and that the assessment orders were issued on 27 November 1953. It was clear that these assessments had not been made within the period prescribed by sub‑section (3) of section 34, which was four years in this context. The Tribunal had relied on the second proviso to sub‑section (3) of section 34 as amended by the Amending Act of 1953, which had become operative on 1 April 1952. Justice Das indicated that, for reasons he had previously articulated in S C Prashar, Income‑Tax Officer v. Vasantsen Dwarkadas, the second proviso could not revive a remedy that had become barred before the amendment took effect.

The Court observed that the second proviso to sub‑section (3) of section 34, as reported in the 1964 volume 1 of the Supreme Court Reporter at page 29, does not revive a remedy that had already become barred before 1 April 1952, the date on which the amended proviso came into force. The appellant subsequently relied upon section 31 of the Amending Act of 1953. The Court agreed with the observations of Justice Kapur that the point of law previously referred to the High Court was not the issue presently urged before the Court. Moreover, after considering the reasoning set out in the earlier decision of S. C. Prashar, Income‑Tax Officer v. Vasantsen Dwarkadas (1964) Vol. 1 S.C.R. 29, the Court concluded that section 31 of the Amending Act does not save the assessment in question. Accordingly, the Court dismissed both appeals, ordered that costs be awarded, and imposed a single hearing fee.

Justice Kapur then outlined the factual backdrop of the two appeals, which were filed under a certificate granted by the High Court of Patna against the judgment and order of that Court. The Income‑Tax Appellate Tribunal had referred the following question to the High Court, and the Tribunal’s answer was negative and against the appellant: whether, in view of the return dated 7 March 1951 filed by Sardar Lakhmir Singh in his individual capacity and in accordance with the provisions of section 34(3), the assessment made on him on 27 November 1953 was validly made. The assessments concerned the fiscal years 1946‑47 and 1947‑48, and each appeal corresponded to one of those years. The respondent, Sardar Lakhmir Singh, was the son of S. Nechal Singh. Up to the assessment year 1943‑44, the father and son had been assessed collectively as a Hindu undivided family (HUF). In the assessment year 1944‑45, a claim was made under section 25A of the Income‑Tax Act for separate assessment of the incomes of S. Nechal Singh and S. Lakhmir Singh. That claim was rejected and the income continued to be assessed as that of an HUF with S. Nechal Singh acting as the karta. In the subsequent year, 1945‑46, both father and son filed separate returns and made a claim under section 26A; this claim was also rejected, and the assessment again treated them as an HUF, although a protective assessment was made in favour of S. Lakhmir Singh as an individual. The matter was appealed to the Income‑Tax Appellate Tribunal, which held that the incomes of S. Nechal Singh and S. Lakhmir Singh were not to be treated as those of an HUF but as their separate individual incomes. Consequently, the Tribunal set aside the earlier HUF assessment. In its order dated 15 October 1952, the Tribunal directed the Income‑Tax Officer to make fresh assessments, in accordance with law, from the return stage, against the correct persons for the respective sources of income. For the assessment year 1946‑47, three returns were filed: one by the respondent S. Lakhmir Singh on 15 March 1951 concerning his separate income, a second by S. Nechal Singh in his individual capacity, and a third, lodged under protest by S. Nechal Singh in his capacity as karta of the Hindu undivided family, dated 20 June 1950, which declared a nil total income.

In the assessment year 1946‑47, three returns were filed: one by respondent S. Lakhmir Singh on 15 March 1951 in his individual capacity, another by S. Nechal Singh in his individual capacity, and a third return filed in protest by S. Nechal Singh acting as the Karta of the Hindu undivided family. The protest return was dated 20 June 1950 and declared a total income of nil. On 15 March 1951, the Income‑tax Officer assessed the combined income of S. Nechal Singh and S. Lakhmir Singh as the income of the Hindu undivided family. Subsequently, on 20 March 1953, an appeal was lodged against the assessment for the year 1946‑47 and the Appellate Assistant Commissioner set aside both orders of the Income‑tax Officer, relying on the earlier order of the Income‑tax Appellate Tribunal dated 15 October 1952. Later, on 27 November 1953, the Income‑tax Officer made a fresh assessment against respondent S. Lakhmir Singh in his individual capacity. An appeal against the 27 November 1953 assessment was raised before the Appellate Assistant Commissioner, contending that the assessment was barred by the provisions of the unamended section 34(3) of the Act. That contention was rejected, and a further appeal to the Appellate Tribunal was dismissed on 6 September 1955. The Tribunal held that, pursuant to the amended proviso to section 34(3), the Income‑tax Officer was authorised to assess the respondent even though the respondent was not the appellant before the Appellate Assistant Commissioner, and that no limitation period applied to such an assessment. The respondent then raised the question before the High Court. The High Court held that the Amending Act of 1953 did not apply to the facts of the present case and that the assessment dated 27 November 1953 was barred under the unamended section 34(3). The Court reasoned that when the Amending Act of 1953 came into force on 1 April 1952, the power of the Income‑tax Officer to assess tax for the year 1946‑47 had already become extinguished, and a right had accrued in favour of the respondent before that date. For the assessment of the year 1947‑48, the Court reached the same conclusion and declared the assessment illegal. Two appeals have been filed against those assessment orders, one for each year, and the appeals have been consolidated. The appellant argues that the Income‑tax Officer made the assessment on 27 November 1953 pursuant to the order of the Appellate Assistant Commissioner dated 20 March 1953, and that when the officer completed the assessment the amended proviso to section 34(3) was already in force, therefore the officer could, notwithstanding the lapse of the period, reassess the respondent and that the reassessment was valid. The appellant submits that this argument is the same as the one raised in the case of S. O. Prashar, Income‑tax Officer v. Vasantsen Durkadas, a judgment delivered today. In the present case the applicable period was four years. Regarding the assessments for the years 1946‑47 and 1947‑48, the four‑year period ended before 1 April 1952. For the reasons given in S. C. Prashar’s case, the assessment will be barred and, in the Court’s opinion, the High Court correctly held so.

For the assessment years 1946‑47 and 1947‑48 the statutory period of four years had already expired before 1 April 1952. The Court therefore agreed with the High Court that, on the basis of the decision in S.C. Prashar’s case (1) [1964] Vol. 1 S.C.R. 29, the assessments were barred by the limitation period and should be set aside. The appellant also attempted to rely on section 31 of the Amending Act 1953. It was contended that the first part of that provision validated the assessment proceedings. The relevant excerpt of section 31 reads as follows: “For the removal of doubts it is hereby declared that the provisions of sub‑sections (1), (2) and (3) of section 34 of the principal Act (the Indian Income‑Tax Act, 1922) shall apply and shall be deemed always to have applied to any assessment or reassessment for any year ending before the 1st day of April 1948 in any case where proceedings in respect of such assessment or reassessment were commenced under the said sub‑sections after the 8th day of September 1948.” The appellant argued that because the assessments concerned years ending before 1 April 1948 and were commenced under sub‑sections 1, 2 and 3 of section 34 after 8 September 1948, the provisions of sub‑sections 1, 2 and 3 must be deemed to apply to the two assessments.

The Court observed that the High Court had never been asked to consider this issue. The referral to the High Court was limited to the specific question that fell within its advisory jurisdiction, and it could not address any other matter. Moreover, the form of the question did not incorporate the applicability of section 31 of the Amending Act 1953. The question referred to the return filed by the respondent S. Lakhmir Singh on 7 March 1951 and to the provisions of section 34(3); it contained no reference to the validity of the proceedings based on a commencement after 8 September 1948. The record did not show that the proceedings for the assessment year 1946‑47 began after that date. Although the return was indeed filed on 15 March 1951, the actual date when the assessment proceedings were commenced was not established. The Court held that if the appellant wished to rely on section 31, it was his responsibility to present all necessary material before the Appellate Tribunal so that a properly framed question could be referred to and answered by the High Court. In the absence of such material, there was no basis on the record to consider the application of section 31 of the Amending Act 1953. Consequently, the provision could not be invoked in support of the assessment orders.

In this case the Court held that there was no question of the provisions of section 31 of the Amending Act 1953 arising, because no finding had been made that the commencement of the proceedings occurred on 7 March 1951, the date on which the return referred to in the question had been filed. Consequently, the Court concluded that the appellant could not rely on section 31 of the Amending Act 1953. The scope of the High Court’s jurisdiction under section 66 of the Income‑Tax Act had earlier been clarified by this Court in The New Jehangir Vakil Mills Ltd. v. Commissioner of Income‑tax (1960) 1 S.C.R. 249. On the basis of the reasons already discussed, the Court dismissed the appeals, ordered them to be dismissed with costs, and required the payment of one hearing fee.

SARKAR, J. observed that the appeals concerned the assessment years 1946‑47 and 1947‑48 and raised the question whether the assessment orders dated 27 November 1953 for those years were valid under the second proviso to sub‑section (3) of section 34 of the Income‑Tax Act, 1922, as that proviso stood after amendment by section 18 of the Income‑Tax (Amendment) Act, 1953. The respondent‑assesse was Lakhmir Singh. Up to the assessment year 1943‑44, Lakhmir Singh was a member of a Hindu undivided family consisting of his father, Nechal Singh, and his brother, Dhanbir Singh. For the year 1944‑45 a claim was made under section 25A of the Act that the joint family had been disrupted and that the members should be assessed individually; that claim was rejected. The same claim was made again for the year 1945‑46 and was again rejected. Nevertheless, the assessment for 1945‑46 was made on the basis of a Hindu undivided family, and a protective assessment was entered for Lakhmir Singh as an individual for the income he had shown in his separate return. An appeal was filed against the rejection of the section 25A claim. While that appeal was pending, Lakhmir Singh and his father each filed separate returns for the year 1946‑47, and the father also filed a return as Karta of the Hindu undivided family declaring nil income on the ground that the family had ceased to exist since 1944‑45. On 15 March 1951 the Income‑Tax Officer combined the incomes of the son and the father, treating the total as the income of a Hindu undivided family for the year 1946‑47, but did not make a protective assessment for the son as had been done for 1945‑46. The father, as Karta, appealed the order of 15 March 1951. On 15 October 1952 the Income‑Tax Appellate Tribunal allowed the appeal against the assessment as a Hindu undivided family for the year 1945‑46 and observed: “We, therefore, conclude that notwithstanding the erroneous description given by the appellant to himself in his returns before 1943‑44 as Hindu Undivided Family, in which status he was accordingly assessed in the past on the …”

The Tribunal held that the income derived from property and from business activities, which either belonged solely to the assessee or to the assessee together with his partner and his elder son Lakhmir Singh, could not be lawfully assessed in the status of a Hindu Undivided Family for the year 1945‑46. Consequently, the Tribunal set aside that assessment and directed the Income‑Tax Officer to prepare a fresh assessment in accordance with the law, beginning from the return stage and based on the correct persons and the proper sources of income as identified by the Tribunal. In view of this decision, the Appellate Assistant Commissioner also allowed the assessee’s appeal against the assessment order relating to the year 1946‑47 on 20 March 1953, thereby setting aside the earlier order dated 15 March 1951. The commissioner’s order recorded that, after hearing the appellant, it had been determined that the assessment on the basis of a Hindu Undivided Family was untenable, and therefore the assessment was set aside for a re‑assessment of the relevant sources involving the correct persons and in the correct legal status. A similar situation arose with respect to the year 1947‑48. The Income‑Tax Officer, by an order dated 24 March 1952, had assessed the total income of the assessee and his father as members of a Hindu Undivided Family. The father, acting as the Karta of that family, appealed this order, and the Appellate Assistant Commissioner allowed the appeal on 21 March 1953, setting aside the assessment dated 24 March 1952. In his observation the commissioner stated that, having heard the appellant, the assessment was set aside for a re‑assessment for the same reasons as in the 1946‑47 case. For the year 1947‑48, both the assessee and his father again filed separate returns, and the father also filed a return as a Hindu Undivided Family declaring nil income in that return. No protective assessment appears to have been made against the assessee individually in that year. Subsequently, the Income‑Tax Officer issued the impugned assessment orders on 27 November 1953, covering the years 1945‑46 and 1947‑48, based on the returns filed by the assessee in his individual capacity. The assessee appealed the November 1953 order, but the appeal was dismissed. Thereafter, the assessee obtained an order from the Tribunal referring a specific question to the High Court at Patna concerning the validity of the assessment made on 27 November 1953 in light of the individual return dated 7 March 1951 filed by Sardar Lakhmir Singh and the provisions of section 34(3). A parallel question was referred to the High Court under a separate Tribunal order for the year 1947‑48. The High Court answered these questions against the revenue authorities, and the revenue authorities consequently filed an appeal against the High Court’s decision.

There were two separate appeals in this matter. The appellant asserted that the assessment orders issued on 27 November 1953 were not made within the period prescribed by section 34(3) of the Income‑Tax Act. According to the substantive part of subsection (3), an assessment for the year 1946‑47 had to be completed by 31 March 1951 and an assessment for the year 1947‑48 by 31 March 1952. Because the orders were actually made more than a year later, on 27 November 1953, it was not contested that, unless the second proviso to subsection (3) of section 34, as amended by the 1953 amending Act, applied, the assessments would be invalid. Consequently, the central question before the Court was whether the second proviso shielded the assessments from invalidity. The proviso reads: “Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or re‑assessment may be made, shall apply to a re‑assessment made under section 27 or to an assessment or re‑assessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 31, section 33, section 33A, section 33B, section 66 or section 66A.” The appellant argued that, on the basis of this proviso, the assessments were valid despite the substantive time limit. However, the appellant also contended that the proviso contravenes Article 14 of the Constitution and is therefore void; if the proviso were indeed unconstitutional, it could not protect the assessment orders at all.

The effect of the proviso is to render an assessment that would otherwise be time‑barred permissible when the assessment is made because of an order issued under section 31 or the other enumerated sections. Section 31 deals with orders made in appeal by an Appellate Assistant Commissioner. In the present case, the Appellate Assistant Commissioner issued orders under section 31 on 20 March 1953 and 21 March 1953, and it was on the basis of those orders that the contested assessment orders were later issued. The Court noted that the other sections mentioned in the proviso were not at issue here. Substantively, the proviso states that an assessment which would be invalid for being beyond the period fixed in the substantive part of subsection (3) will not be invalid if it is made “on the assessee or any person in consequence of … an order under section 31.” By inserting this qualification, the proviso creates a distinct class of persons – namely the assessee and any other person whose assessment arises from an order under section 31 – who may be assessed at any time, whereas other taxpayers who evade tax must be assessed within the four‑year limit. This classification, the appellant submitted, amounts to discrimination because it permits assessments against these persons without time restriction while imposing the statutory limitation on all other tax evaders. The appellant therefore argued that the proviso differentiates the appellant from other taxpayers and that such differentiation must be justified; otherwise, it violates the principle of equality before the law.

In this case the Court explained that the term “assessee” referred to the person who was the subject of an appeal or any other proceeding in which an assessment was made pursuant to section 31 or any of the other sections enumerated in the proviso. The Court observed that, although it did not finally decide the issue, it was possible to consider that such an assessee might belong to a distinct class because, in that particular instance, a judicial finding made in the assessee’s presence had concluded that the assessee had evaded tax. To that limited extent the assessee could be regarded as different from other tax evaders, and the distinction might be related to the purpose of the statute, namely the prevention of tax evasion and the collection of tax that was lawfully due but remained unpaid. However, the Court noted that the proviso created a class not only of the assessee but also of other persons, namely those against whom an assessment order was issued as a consequence of an order under section 31 that had been made in the assessment case of a different individual, the latter being the assessee mentioned in the proviso. The Court pointed out that these other persons were evidently individuals against whom the Appellate Assistant Commissioner, while issuing an order under section 31 in an appeal arising from another person’s assessment case, formed the view that they had also evaded tax. The Court emphasized that such a “another person” had not been a party to any proceeding under section 31 and therefore had not been given an opportunity to demonstrate to the Appellate Commissioner that the view held about him was unwarranted. Consequently the Court raised the question of whether these other persons could be placed in a separate class as compared with other tax evaders. It was made clear that it could not be suggested that there were no other tax evaders except those who had been found to be evaders in proceedings under section 31 or the other sections referred to in the second proviso. The Court found no intelligible distinction between a person who had been found to have evaded tax in a section 31 proceeding and other tax evaders that would bear any rational relation to the object of the second proviso. While acknowledging that the proceedings under section 31 might have produced certain evidence that satisfied the Appellate Commissioner that a person not before him had evaded tax, the Court observed that the revenue authorities could equally be satisfied on the basis of similarly strong evidence obtained outside the proceedings described in the second proviso. Accordingly, the Court saw no substantive difference between such a person and the person described in the proviso. Nevertheless, the Court noted that the former enjoyed the protection of the limitation period against an assessment order as provided in the substantive part of subsection (3), a protection that was denied to the persons specified in the second proviso. The Court concluded that the second proviso therefore created a hostile discrimination against the persons it mentioned, and that the classification it imposed lacked any intelligible difference having a rational connection with the purpose of the statute.

The Court thought, therefore, that the second proviso to sub‑section (3) of section 34, as amended by the Amending Act of 1953, was void. The Court held that the provision was void insofar as it affected persons other than assessess because it violated Article 14 of the Constitution. Consequently, the Court concluded that the provision could not be used to validate the assessment orders that were issued in the present case. The Court observed that it was unnecessary to say that the proviso was bad because it made a hostile discrimination against the assessee mentioned in it, and accordingly, the Court did not express any finding on whether the proviso created such a hostile discrimination in the present context. The respondent, Lakhmir Singh, was not the assessee in the section 31 proceedings that led to the issuance of the assessment order against him. The assessee in those proceedings was his father, who acted as the Karta of a family that, in reality, did not exist. Because the provision was applied to Lakhmir Singh, who was not the assessee, the Court held that the proviso was invalid as applied to him. Accordingly, the Court ordered that the appeals filed by the parties be dismissed in their entirety and that no further relief be granted. The judgment of Justice Hidayatullah and Justice Raghubar Dayal, referenced in S.C. Prashar, Income‑Tax Officer v. Vasantsen Dwarkadas, is noted at paragraph 29 of that decision. By the Court: In accordance with the majority opinion, the appeals were dismissed with costs and a single hearing fee. The final order therefore recorded that the appeals were dismissed and that the parties were to bear the costs as directed.