The Ahmedabad Mfg. and Calicoprinting Co., Ltd. vs S. C. Mehta, Income-Tax Officer and another

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

Court: Supreme Court of India

Case Number: Civil appeal No. 139 of 1962

Decision Date: 14 November, 1962

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

In this matter the petitioner was The Ahmedabad Manufacturing and Calicoprinting Company Limited and the respondents were S C Mehta, an Income‑Tax Officer, together with another official. The case was listed before the Supreme Court of India and the judgment was delivered on 14 November 1962. The learned bench comprised Justice S K Das, Justice J L Kapur, Justice A K Sarkar, Justice M Hidayatullah and Justice Raghubar Dayal. The official citation of the decision is reported in 1963 AIR 1436 and also in the 1963 Supplement to the Supreme Court Reports, part 2, page 92. Subsequent citations of the judgment appear in various law reports, namely RF 1965 SC 171, F 1966 SC 1481, RF 1968 SC 623 and other references. The operative statutes involved were the Finance Act of 1956, sections 19 and 28, and the Indian Income‑Tax Act of 1922, section 35 paragraph 10. The central issue concerned the retrospective operation of that statutory provision, the entitlement to a rebate on undistributed profits, the subsequent declaration of dividends out of those profits, and the authority of the Income‑Tax Officer to withdraw the rebate and recompute the tax liability.

The headnote of the judgment explained that section 35 paragraph 10 of the 1922 Act, which became effective on 1 April 1956, stipulated that if during any assessment year from 1948‑49 to 1955‑56 a company received a rebate of income tax and thereafter the amount on which the rebate was allowed was used, either wholly or partly, for the purpose of declaring dividends in any later year, that amount would be treated as having been given incorrect relief. Consequently the Income‑Tax Officer was required to recompute the tax payable by reducing the rebate that had originally been granted. In the factual backdrop, for the assessment year 1952‑53, which corresponded to the calendar year 1951, the appellant company was assessed to income tax and surcharge on a total income of Rs 1,02,07,808. Under the Finance Act of 1952 the company was permitted a rebate of one anna per rupee on undistributed profits amounting to Rs 36,62,776. In the following assessment year, 1953‑54, the company was shown to have incurred a loss of Rs 5,98,363 as determined on 17 April 1954. Nevertheless, on 20 April 1954 the company declared a dividend of Rs 19,32,000 out of the undistributed profits of the calendar year 1951, the very profits on which the rebate had been allowed. Several years later, on 18 March 1958, the Income‑Tax Officer issued a notice requiring the company to show cause why action under section 35 paragraph 10 should not be taken against it by withdrawing the rebate granted on the sum of Rs 19,32,000. The company contended that paragraph 10 of section 35 could not apply because the dividend was declared before the statutory provision had come into force.

The Court held, by a majority consisting of Justices Sarkar, Hidayatullah and Raghubar Dayal, that paragraph 10 of section 35 was intended to operate retrospectively and therefore was applicable to the facts of the present case. The dissenting opinions of Justices Das and Kapur were noted. The majority observed that the provision created a legal fiction whereby the amount used for dividend distribution, although originally received as a rebate, was to be treated as having been incorrectly relieved once the statutory condition of post‑rebate dividend declaration was satisfied after the provision became effective. Consequently, the Income‑Tax Officer was entitled to recompute the tax liability by withdrawing the earlier rebate, as the statutory intention was to prevent companies from retaining the benefit of a rebate while subsequently distributing the same profits as dividends.

In its analysis, the Court observed that the provision was prospective and demonstrated that the position that had been correct at the time the rebate was granted became incorrect when the crucial event occurred after the subsection came into force. The Court then referred to the principle stated in Income‑tax Officer v. S. K. Habibullah, [1962] Supp. 2 S. C. R. 716, which holds that a statute which is not merely declaratory of an existing law nor a procedural matter, but which affects vested rights, cannot be given a retrospective effect greater than that required by its language, and that when construing a partially retrospective section the limit is reached where the words cease to be plain. The Court applied this principle to the present case. Justice Sarkar observed that the language used in sub‑sections (5) and (10) of section 35 is wholly different, and therefore the earlier case of Income‑tax Officer v. S. K. Habibullah is distinguishable. Justice Hidayatullah and Justice Raghubar Dayal, speaking together, held that under section 35(10) the only condition is that the dividend declaration must occur after the grant of the rebate. Although the section became operative on 1 April 1956, it was intended to be applied retrospectively to recover rebates on amounts that the law considered to have been given in error; consequently, the power to recall the rebate could be exercised even if the conditions arose before the commencement of the section. The Court further noted that the decisions in Income‑tax Officer v. S. K. Habibullah and Second Additional Income‑tax Officer v. Atmala Nagaraj, [1962] 46 T. T. R. 609, might need to be revisited in a future occasion.

The appeal, numbered 139 of 1962, was filed in the Civil Appellate Jurisdiction against the judgment and decree dated 6 November 1958 rendered by the Bombay High Court in Special Civil Application 1806 of 1958. Counsel for the appellant comprised senior members of the bar, while counsel for the respondents represented the opposing side. The judgment was delivered on 14 November 1962. Separate opinions were authored by Justice S. K. Das and Justice J. L. Kapur, by Justice M. Hidayatullah together with Justice Raghubar Dayal, and by Justice A. K. Sarkar. Justice S. K. Das authored the leading opinion. The appeal arose from a certificate of fitness granted by the Bombay High Court and posed the question of interpretation of sub‑section (10) of section 35 of the Indian Income‑tax Act, 1922. This sub‑section belongs to a group of provisions inserted into section 35 by section 19 of the Finance Act, 1956 (Act 18 of 1956). By virtue of section 28 of that Finance Act, sub‑section (10) of section 35 became effective on 1 April 1956. The precise issue before the Court was whether, when properly construed, sub‑section (10) of section 35 applied to a situation where a company declared dividends by using, wholly or partly, the amount on which a tax rebate had previously been allowed, and the dividend declaration was made before the sub‑section came into force.

In this case the Court examined whether subsection (10) of section 35 of the Income‑Tax Act applied to a dividend that had been declared before that subsection became effective on 1 April 1956. The appellant, Ahmedabad Manufacturing and Calico Printing Co., Ltd., was incorporated under the Indian Companies Act, 1866 and operated from Ahmedabad, engaging in the manufacture and sale of cotton piece goods and chemicals. For the assessment year 1952‑53, which corresponded to the calendar year 1951, the company was assessed on a total income of Rs 1,02,79,808 and was granted a rebate of one anna per rupee on undistributed profits amounting to Rs 36,62,776 under clause (1) of the proviso to paragraph B of Part I of the first Schedule to the Finance Act, 1952. The rebate that was allowed therefore amounted to Rs 2,28,924. In the following assessment year, 1953‑54, corresponding to the calendar year 1952, the company showed a book profit of Rs 45,67,96,66 but was assessed to a loss of Rs 5,98,353 on 17 April 1954. During that calendar year the company declared a dividend of Rs 19,32,000 on 20 April 1954, and that dividend was paid out of the undistributed profits of the previous year on which the rebate had been granted. On 18 March 1958 the Income‑Tax Officer, Special Circle, Ahmedabad (respondent No. 1), issued a notice to the company requiring it to show cause why action under subsection (10) of section 35 should not be taken by withdrawing the rebate that had been allowed on the sum of Rs 19,32,000. The company objected, contending that subsection (10) of section 35 did not apply to its situation. The Officer, however, held that the provision was applicable and directed that the rebate on Rs 19,32,000 be withdrawn, directing a recomputation of tax and issuing a demand notice for Rs 1,20,750, which represented the rebate previously allowed on that amount. The order was passed on 27 March 1958. Aggrieved by this order, the company filed a writ petition in the High Court of Bombay on 26 June 1958, arguing that subsection (10) of section 35 could not be applied to a dividend declared before the subsection came into force. The High Court rejected the contention and dismissed the petition. Subsequently, the company obtained a certificate of fitness and preferred the present appeal before this Court, seeking review of the order under the certificate of fitness.

The Court considered the provisions of section 35 that were relevant for its purpose. Section 35(1) provides that the Commissioner or the Appellate Assistant Commissioner may, at any time within four years from the date of any order passed by him in appeal, or, in the case of the Commissioner, in revision under section 33A, and that the Income‑tax Officer may, at any time within four years from the date of any assessment order or refund order passed by him on his own motion, rectify any mistake apparent from the record of the appeal, revision, assessment or refund, as the case may be, and that within the same period the officer shall also rectify any such mistake that has been brought to his notice by an assessee. Sub‑section (2) reads “xx xx”. Sub‑section (3) reads “xx xx”. Sub‑section (4) reads “xx xx”. Sub‑section (5) states that where, in respect of any completed assessment of a partner in a firm, it is found on the assessment or reassessment of the firm, or on any reduction or enhancement made in the income of the firm under section 31, section 33, section 33A, section 33B, section 66 0 or section 66A, that the partner’s share in the profit or loss of the firm has not been included in the assessment of the partner, or if included, is not correct, the inclusion of the share in the assessment or its correction shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and that the provisions of sub‑section (1) shall apply accordingly, the four‑year period being computed from the date of the final order passed in the case of the firm. Sub‑section (6) provides that where the excess profits tax or the business profits tax payable by an assessee has been modified in appeal, revision or any other proceeding, or where any excess profits tax or business profits tax has been assessed after the completion of the corresponding assessment for income‑tax (whether before or after the commencement of the Indian Income‑tax (Amendment) Act, 1953), and as a result it becomes necessary to recompute the total income of the assessee chargeable to income‑tax, such recomputation shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section and the provisions of sub‑section (1) shall apply accordingly, the four‑year period being computed from the date of the order making or modifying the assessment of such excess profits tax or business profits tax. Sub‑section (7) reads “xx xx”. Sub‑section (8) reads “xx xx”. Sub‑section (9) reads “xx xx”. Sub‑section (10) states that where, in any of the assessments for the years beginning on the 1st day of April of the years 1948 to 1955 inclusive, a rebate of income‑tax was allowed to a company on a part of its total income under clause (1) of the proviso to Paragraph B of Part I of the relevant Schedules to the Finance Acts specifying the rates of tax for the relevant year, the amount on which the rebate of income‑tax was allowed, if availed of by the company, wholly or partly, for declaring dividends in any year, shall, by reason of the rebate of income‑tax allowed to the company and to the extent to which it has not actually been subjected to an additional income‑tax in accordance with the provisions of clause (ii) of the proviso to Paragraph B of Part I of the Schedule to the Finance Acts, be deemed to have been made the subject of incorrect relief under this Act, and the Income‑tax Officer shall recompute the tax payable by the company by reducing the rebate originally allowed, treating that recomputation as a rectification of a mistake apparent from the record within the meaning of this section and applying the provisions of sub‑section (1) accordingly.

The Court explained that when a company used the amount on which an income‑tax rebate had been granted, either wholly or partially, for the purpose of declaring dividends in any year, that amount—or the portion of it that was used—was treated as having received an incorrect relief under the Act. This characterization arose because the rebate had been allowed to the company, yet the amount had not been subjected to any additional income‑tax in accordance with clause (ii) of the proviso to Paragraph B of Part I of the Schedule to the Finance Acts. Consequently, the Income‑tax Officer was required to recompute the tax liability of the company by reducing the originally allowed rebate, as though the recomputation constituted a rectification of a mistake apparent from the record within the meaning of the relevant provision. The Court further noted that the provisions of sub‑section (1) applied to this recomputation, and that the four‑year period prescribed in that sub‑section was to be measured from the end of the financial year in which the company had availed itself of the rebate amount, whether in whole or in part, for the purpose of declaring dividends.

Speaking in general terms, the Court described section 35 as dealing with the rectification of mistakes in the various circumstances detailed in its sub‑sections and as providing for the orders that follow such rectification. Sub‑section (1) empowered the Income‑tax authorities to rectify any mistake apparent from the record concerning certain orders that they had passed. Under this sub‑section, the Income‑tax Officer could, on his own motion, rectify a mistake at any time within four years of the date of the assessment order, provided two conditions were satisfied: first, that a mistake apparent from the record of the assessment genuinely existed; and second, that the rectification order was issued within the four‑year limit measured from the date of the assessment that was to be corrected. Sub‑section (5) concerned the inclusion or correction of a partner’s share of income in a firm when the firm itself was assessed or reassessed. Sub‑section (6) dealt with recomputing the total income of an assessee when modifications were made to the excess profits tax or the business profits tax payable by the assessee after an assessment under the Income‑tax Act had been completed. The Court observed that these two sub‑sections had been examined in two earlier decisions, which were cited subsequently and relied upon by the appellant in interpreting sub‑section (10). The Court clarified that sub‑sections (2), (3), (4), (7), (8) and (9) were not relevant to the matter before it and therefore need not be considered. Finally, the Court turned to sub‑section (10), which concerned situations where a rebate was allowed to a company on a portion of its income, specifically undistributed profits, under the concessions granted by the Finance Acts of 1948 to 1955.

The provision under consideration permitted a company to obtain a tax rebate on its undistributed profits by virtue of the concessions contained in the Finance Acts enacted between 1948 and 1955. The opening clause of sub‑section (10) of section 35 makes this allowance explicit and unambiguous. The subsequent clause specifies the decisive event that will cause the rebate to be treated as having arisen from a mistake apparent on the record. That decisive event, according to the wording, is the declaration of dividends by the company from any portion of the amount on which the rebate had previously been granted. The operative clause then provides that, once the dividend declaration occurs, the sum on which the rebate was originally granted and subsequently used for dividend distribution shall be deemed to have been the subject of incorrect relief under the Act. Accordingly, the Income‑Tax Officer is required to recompute the company's tax liability by withdrawing the previously allowed rebate, treating the recomputation as a rectification of a mistake apparent on the record as defined by the section. The final clause imposes a limitation period of four years, measured not from the date of the rectifying order but from the close of the financial year in which the company employed the rebated amount, wholly or partly, for dividend distribution. In summary, these four parts together constitute the legislative scheme of sub‑section (10) of section 35. The appellant contended that, like sub‑section (5) of the same section, sub‑section (10) interferes with a vested right, namely the right to the income‑tax rebate on a portion of the company's total income and the consequent right to distribute dividends out of the undistributed profits of the preceding year. The appellant relied on established principles of statutory construction, which hold that a statute may not impair an existing right or obligation, except with respect to procedural matters, unless the statute’s language clearly indicates such retrospective effect or it is necessary and unmistakably implied. In other words, the statute should not be interpreted to operate retrospectively beyond what its wording requires. The appellant further submitted that the general rule is that statutes, unless expressly declaratory or concerned solely with procedure or evidence, are presumed to apply prospectively, and retrospective operation must be shown by explicit wording or necessary implication reflecting legislative intent. Moreover, the appellant argued that even when a legislature intends limited retrospective effect, the provision should not be construed as having a broader retrospective impact than is clearly intended.

The Court observed that a statute cannot be given a retrospective effect beyond what its language necessitates, referring to Halsbury’s Laws of England, volume 36, third edition, pages 423 and 426. The appellant argued that section 28 of the Finance Act 1956 makes subsection (10) of section 35 retrospectively effective from 1 April 1956, but contended that the wording of that subsection neither expressly nor by necessary implication confers any greater retrospective operation. The appellant pointed out that when Parliament intended a greater retrospective impact it expressly stated so, for example in subsection (6). The appellant also noted that subsection (5) of section 35 was introduced by the Indian Income‑tax (Amendment) Act 1953 and, by section 1(2) of that Act, came into force on 1 April 19.52. Further, the appellant highlighted that wherever the legislature wished to grant a larger retrospective effect to particular provisions it did so in sections 3(2), 7(2) and 30(2) of the same Act. On that basis the appellant submitted that no greater retrospective effect should be attributed to subsection (10) of section 35 than that already provided by section 28 of the Finance Act 1956. Counsel for the appellant relied heavily on the Supreme Court’s decision in Income‑tax Officer v S K Habibullah, wherein the Court held that subsection (5) of section 35 was not merely declaratory or procedural but affected vested rights and therefore could be deemed to have come into force only on 1 April 1952. Consequently the Income‑tax Officer lacked jurisdiction to revise a partner’s assessment after the firm’s assessment had been completed before that date. The appellant’s counsel argued that the same principle must govern the present case, asserting that subsection (10) of section 35 should not apply to a dividend declared by the company before the subsection’s commencement on 1 April 1956. The counsel further contended that there was no substantive difference in the language of subsections (5) and (10) of section 35. In both provisions a rectification or correction is triggered by a subsequent event: in subsection (5) the triggering event is the firm’s assessment revealing an earlier partner’s inaccurate assessment, while in subsection (10) the triggering event is the declaration of a dividend out of an amount for which a rebate had previously been granted. It was pointed out that, in their true scope and effect, the two subsections stand on the same footing. Sub‑section (10) further makes it clear that by a ‘legal fiction that which was correct’

In this matter, the Court examined the wording of sub‑section (10) of section 35, which provided that when a company received a rebate of income‑tax, the rebate would, by operation of law, be treated as having been granted incorrectly and that the Income‑Tax Officer must recompute the tax by reducing the rebate that had originally been allowed. The counsel for the appellant argued that this wording was clearly prospective and could not be applied to any period before 1 April 1956, because the provision spoke of the situation “at the time when it was made” becoming incorrect only after the sub‑section came into force. The counsel for the respondent, however, contended that sub‑section (10) differed from sub‑section (5) and that the principle laid down in S K Habibullah’s case could not be applied. He further urged that the decision was erroneous and should be reconsidered. Alternatively, the respondent’s counsel submitted that, by necessary implication, sub‑section (10) possessed a broader retrospective effect than that provided by section 28 of the Finance Act 1956. He pointed out that the first part of the sub‑section referred to assessments for any year from 1 April 1948 to 1 April 1955 when a rebate was allowed, while the second part dealt with a later declaration of dividend by the company in any year. Emphasising the words “in any year,” he argued that this indicated an intention to include dividend declarations made even before 1 April 1956. The respondent also cited the case reported in 1962 Supp 2 S C R 716, maintaining that the sole effect of section 28 of the Finance Act 1956 was to permit the Income‑Tax Officer to act only after 1 April 1956, and that the language of sub‑section (10) did not confine the legal fiction it created to dividend declarations on or after that date. After careful consideration, the Court observed that the language of sub‑section (10) of section 35 was not as clear as one might wish, but it was evident that the provision affected vested rights and should not be given a retrospective operation greater than its wording required. Although the sub‑section was to some extent retrospective and section 28 of the Finance Act 1956 expressly made it retrospective from 1 April 1956, the Court found no indication in the wording of sub‑section (10) that the legislature intended to extend the legal fiction to a period preceding the date on which the sub‑section became effective. The Court applied the maxim that, when construing a provision that is partially retrospective, the interpretation must stop where the plain meaning of the words ends. Consequently, the Court concluded that the legislative intent did not support applying the legal fiction created by sub‑section (10) to any period before the sub‑section’s commencement.

The Court held that the reference in the first part of sub‑section (10) of section 35 to assessments made in the years 1948 to 1955 merely denotes the period during which the rebate provisions were operative. It was undisputed that those rebate provisions had commenced with the Finance Act of 1948 and had terminated with the Finance Act of 1955; consequently, the initial wording was simply a temporal reference to that specific interval. In the second part of the provision, the expression “declaring dividends in any year” must be read together with the word “subsequently,” which can only be understood as occurring after the allowance or rebate. The same clause further states that the declaration of a dividend in any year shall, by virtue of the rebate, be deemed to have made the amount on which the rebate was granted subject to an incorrect relief. This language creates a legal fiction that is expressly prospective; it indicates that what was correct at the time the rebate was granted becomes incorrect only upon the occurrence of a later, crucial event after the sub‑section’s commencement, which, by virtue of section 28 of the Finance Act, 1956, is April 1, 1956. Accordingly, the Court could not accept the respondent’s counsel’s argument that sub‑section (10) by necessary implication extends the legal fiction to a period preceding April 1, 1956. In reaching this conclusion, the Court kept in mind the principle that a statute does not acquire a retrospective effect merely because some of its operative elements relate to a time before its enactment. The Court also observed that there was no reason to doubt the applicability of the principle laid down in S. K. Habibullah’s case, nor was it persuaded that the earlier decision concerning sub‑section (5) of section 35 was erroneous. The Court noted, however, that in Second Additional Income‑Tax Officer v. Atmala Nagaraj, this Court had held that sub‑section (5) of section 35 did not apply where the partner’s assessment was completed before April 1, 1952, even though the firm’s assessment concluded after April 1, 1962. The appellant’s counsel, while conceding that he did not wish to pursue that line of argument, suggested that even where a dividend was declared after April 1, 1956, sub‑section (10) would be inapplicable because it would render the provision unworkable. The Court acknowledged that the decision in Second Additional Income‑Tax Officer v. Atmala Nagaraj might merit reconsideration but declined to express a final view on that matter at this stage.

In the present matter the Court found no justification for rejecting the principle articulated in S. K. Habibullah’s case (2). The principle states that a statute which does not merely declare an existing rule nor merely prescribe procedure, but which interferes with vested rights, may not be given a retrospective effect greater than what its language expressly requires; moreover, when interpreting a provision that is to some extent retrospective, the interpretive line must stop where the wording ceases to be plain. These principles are well settled and their accuracy is not in doubt. Accordingly, the Court allowed the appeal, set aside both the order and judgment of the High Court, and annulled the Income‑tax Officer’s order dated 27 March 1958 together with the notice of demand dated 28 March 1958. The appellant was awarded costs throughout. In the assessment year 1952‑53 the appellant, a company, obtained under the Finance Act, 1952, a rebate on a portion of its profits of the preceding year, 1951, which it had not distributed as dividends to its shareholders. In the subsequent assessment year 1953‑54 the appellant employed part of those undistributed profits to declare dividends. At that time the revenue authorities could not withdraw the earlier rebate on the ground that the profits were later used for dividend distribution. From 1 April 1956 a change occurred when sub‑section (10) of section 35 of the Income‑tax Act, 1922, was brought into force. By an order dated 27 March 1958, invoking that sub‑section, the earlier rebate was withdrawn and the appellant was required to refund it. The appellant then sought a writ from the Bombay High Court to quash the 27 March 1958 order, arguing that sub‑section (10) did not apply to the facts of the case for reasons later explained. That application was dismissed, and the present appeal challenges the High Court’s dismissal. Sub‑section (10) of section 35, enacted by the Finance Act of 1956 and effective from 1 April 1956, provides that where, in any assessment year from 1948‑49 to 1955‑56, a rebate of income‑tax was allowed to a company under the Finance Act then in force on a part of its total income, and subsequently the amount on which the rebate was allowed is used, wholly or partly, by the company for declaring dividends in any year, the Income‑tax Officer shall recompute the tax payable by reducing the originally allowed rebate. The sub‑section essentially permits a rebate that was duly allowed in a prior year to be withdrawn if, subsequently, the amount on which the rebate was granted is used for dividend declaration.

The Court noted that the provision required the Income‑tax Officer to recalculate the tax liability of the company by deducting the rebate that had originally been allowed. In effect, the subsection authorised the withdrawal of a rebate that had been properly granted in any earlier year, but only if, subsequently, the amount on which the rebate had been allowed was used for the purpose of declaring dividends in any year. The appellant argued that the subsection should apply only where the amount on which the rebate was granted was employed for dividend declaration after the subsection came into force on 1 April 1956; consequently, the appellant contended that the provision could not be applied to the present facts. It was further submitted that, if the provision were to operate retrospectively, it would contravene the general presumption that a statute dealing with substantive rights does not have retrospective effect. The appellant relied on the decision in Income‑tax Officer, Madras v. S. K. Habibullah to support this position. The Court observed that applying the subsection to a case such as this would affect a vested right, and that the presumption against retrospective operation is well‑established. However, the Court explained that this presumption does not apply where the language of the statute clearly indicates an intention to operate retrospectively. Upon examining subsection (10), the Court found that the wording plainly showed that the legislature intended the provision to apply even where the amount on which the rebate had been obtained was used for dividend declaration before the subsection became effective, thereby giving it retrospective operation. The provision states that “subsequently the amount on which the rebate of income‑tax was allowed as aforesaid is availed of … for declaring dividends in any year.” The Court held that the terms “subsequently” and “in any year” unambiguously refer to any year occurring after the year in which the rebate was granted, and therefore they necessarily include years preceding the commencement of the subsection. The appellant’s contention that, in view of the presumption against retrospective effect, those words should be read to exclude years before the subsection’s commencement was rejected. The Court found no ambiguity in the language. It observed that if the legislative intention had been to limit the provision to dividend declarations made after the enactment, the words “subsequently” and “in any year” would have been unnecessary; the subsection could simply have read “and the amount is availed of for declaring dividends.” The inclusion of the additional wording therefore indicates a purpose beyond a purely prospective application. The Court could not discern any purpose other than granting the provision retrospective effect, and consequently concluded that the language of the subsection plainly requires it to operate retrospectively, making it applicable to the present case.

In the present case the Court observed that the wording of the subsection clearly demanded a retrospective effect and therefore applied to the facts before it. The Court further noted that the usual presumption against retrospective operation did not arise here because, as explained in Pardo v. Bingham (1869) L.R. 4 Ch. 735, the rule that a statute could not operate retrospectively unless its language expressly said so was not absolute. The Court said that it was necessary to consider the overall purpose of the statute, the remedy intended, the prior legal position and the legislature’s intention. The Court found that by introducing a rebate on undistributed profits through the Finance Acts of 1948 to 1955, the legislature aimed to promote the use of profits within the business itself, with the broader goal of expanding the country’s industries. This objective required the profits to be employed in the enterprise for a considerable period, not merely held briefly and then distributed as dividends without any real benefit to the industry. The Court clarified that the rebate provisions did not forbid the declaration of any dividend at all; rather, they sought to encourage a fair share of profits to go to shareholders while the remaining portion stayed in the business for further development. The rebate was granted on a graduated scale based on the amount of profit that was not paid out as dividends. The system of granting rebates began in the fiscal year 1948‑49 and was discontinued after the year 1955‑56. The subsection in question was brought into force on 1 April 1956, that is, seven years after the rebate scheme had started. This subsection provided that the rebate would be withdrawn if the amount on which it had been granted was later used to declare dividends. From this, the Court inferred that the legislature disapproved of such use of the rebate‑eligible sums for dividend distribution. The Court further reasoned that, given the many years that had elapsed between the commencement of the rebate scheme and the enactment of the subsection, it was reasonable to suppose that a large number of cases involving the distribution of profits on which rebates had been allowed had already occurred. Consequently, the legislature likely intended the subsection to address both past and future instances of such utilisation.

The Court observed that a large number of cases involving the distribution of profits on which a rebate had already been allowed had taken place before the commencement of the subsection on April 1, 1956. It was difficult to imagine that, after that date, many companies intending to use the rebate‑qualified amounts for the declaration of dividends had not already done so. The Court noted that there was no dispute that subsection (10) of section 35 was enacted to penalise any company that, after the enactment, utilised an amount on which a rebate had been granted in the payment of dividends. The Court then considered whether the legislature might have refrained from imposing the same penalty on companies that had used such amounts in dividend declarations before the subsection became operative. It concluded that there was no special merit in those earlier cases and, in fact, they constituted the majority of instances. Since the grant of rebate had been discontinued after March 31, 1956, there was no longer any occasion for new grants, and consequently no need to address future cases of this nature. All these circumstances led the Court to the view that the legislative intention was to penalise the utilisation of rebate‑qualified amounts for dividend payments even in cases that occurred before the subsection came into force. The remedy provided by the subsection would, in any other interpretation, be largely ineffective. The Court therefore held that the general scope and purpose of the subsection, together with the evil it was intended to remedy, clearly indicated that it should apply to the facts of the present case.

Regarding the precedent set in S. K. Habibullah’s case, the Court found that little assistance could be drawn from it. That case applied the presumption against retrospective operation of a statute, a principle that was uncontroversial with regard to subsection (5) of section 35. The Court explained that decisions interpreting one statute are rarely useful for construing another, because each case depends on the specific language of the provision in question, and statutes are not often phrased alike. The language of subsections (5) and (10) appeared to the Court to be wholly different. Moreover, the Court observed that there was nothing in S. K. Habibullah’s judgment indicating that the learned judges had found any wording suggesting a retrospective effect for subsection (5). In contrast, the Court identified such retrospective language in subsection (10). The other considerations previously mentioned by the Court had not been discussed in the Habibullah case. Consequently, the Court concluded that the two cases were entirely distinct and that subsection (10) of section 35 properly applied to the present matter.

Finally, the Court held that the appeal should be dismissed with costs. The decision was recorded as follows: “(1) [1962] Supp. 2 S. C. R. 716. HIDAYATULLAH, J.—This is an appeal by an assessee with certificate under Art. 133 (i)(c) of the Constitution from the judgment and order of.”

The High Court of Bombay had dismissed the petition filed by the assessee company under Article 226 of the Constitution, a petition that challenged an order made under section 35(10) of the Income‑Tax Act which rectified an earlier assessment and sought a writ or writs to restrain the Income‑Tax Authorities from implementing that order. The assessee, identified as The Ahmedabad Manufacturing & Calico Printing Co. Ltd., was a public limited company engaged in the manufacture of cotton‑priced goods and chemicals, and its accounting year corresponded to the calendar year. In the assessment year 1952‑53, which related to the calendar year 1951, the company was assessed on 31 January 1953 on a total income of Rs 1,02,79,808. Under the first proviso to Paragraph B of Part I of the First Schedule to the Finance Act, 1952, the company was allowed a rebate of one anna per rupee, amounting to Rs 2,28,924, on the undistributed profits of Rs 26,62,776. For the subsequent assessment year 1953‑54, covering the calendar year 1952, the company's books initially showed a profit of Rs 45,67,966, which, after deductions such as depreciation, was reduced to a loss of Rs 5,98,353. Despite recording a loss, the company declared a dividend of Rs 19,32,000 on 20 April 1953 for the 1952 account year. By an order dated 18 March 1958, the Income‑Tax Officer issued a notice calling upon the company to show cause why action under section 35(10) of the Income‑Tax Act should not be taken to recall a proportionate part of the rebate, on the basis that, in the officer’s view, the entire dividend of Rs 19,32,000 had been paid out of the undistributed profits of the calendar year 1951 on which the company had previously received a rebate. The provision in section 35(5) states: “Where in respect of any completed assessment of a partner in a firm it is found on the assessment or re‑assessment of the firm or on any reduction or enhancement made in the income of the firm under section 31, section 33, section 33A, section 33B, section 66 or section 66A that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of sub‑section (1) shall apply thereto accordingly, the period of four years referred to in that sub‑section being computed from the date of the final order passed in the case of the firm.” It is necessary to note that, under this amendment, the time limit began from the date of the final order passed in the case of the firm, although the rectification itself pertained to the assessment of the partners of the firm. Furthermore, by section 19 of the Finance Act, 1956, sub‑section (10) (among others) was added effective from 1 April 1956.

In 1956, section 19 of the Finance Act was amended by inserting subsection (10), which read as follows: “(10) Where in any of the assessments for the years beginning on the 1st day of April of the rectify any such mistake which has. been brought to his notice by an assessee:”. It was observed that, for the purpose of this provision, the limitation period began from the date of the assessment order that was to be corrected. Earlier, in 1953, the Indian Income‑tax (Amendment) Act, 1952, brought into force subsection (5) of the same section, effective from 1 April 1952. That provision stated: “(5) Where in respect of any completed assessment of a partner in a firm it is found on the assessment or re‑assessment of the firm or on any reduction or enhancement made in the income of the firm under section 31, section 33 section 33A, section 33B, section 66 or section 66A that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, shall be ‘deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of sub‑section (1) shall apply thereto accordingly, the period of four years referred to in that subsection being computed from the date of the final order passed in the case of the firm.’”. The Court noted that, under this amendment, the four‑year limitation period was calculated from the date of the final order issued in the firm’s case, even though the rectification itself had to be made in the partners’ individual assessments. Subsequently, by virtue of section 19 of the Finance Act, 1956, subsection (10) was again added, effective from 1 April 1956, and it read: “(10) Where in any of the assessments for the years beginning on the 1st day of April of the years’ 1948 to 1955 inclusive, a rebate of income‑tax was allowed to a company on a part of its total income under clause (i) of the proviso to Paragraph B of Part I of the rele‑vant Schedules to the Finance Acts specifying the rates of tax for the relevant year, and subsequently the amount on which the rebate of income‑tax was allowed as aforesaid is availed of by the company, wholly or partly, for declaring dividends in any year, the amount or that part of the amount availed of as aforesaid, as the case may be, shall, by reason of the rebate of income‑tax allowed to the company and to the extent to which it has not actually been subjected to an additional income‑tax in accordance with the provisions of clause (ii) of the proviso to Paragaph B of Part I of the Schedules to the Finance Acts above refer‑red to, be deemed to have been made the subject of”. The Court emphasized that, for this provision as well, the prescribed four‑year period was to be reckoned from the end of the financial year in which the dividend was declared on profits that had benefited from the earlier tax rebate.

It was held that where an incorrect relief had been granted under the Act, the Income‑tax Officer was required to recompute the tax payable by the company by reducing the rebate that had originally been allowed. This recomputation was to be treated as a rectification of a mistake apparent from the record within the meaning of the relevant provision, and therefore the provisions of sub‑section (1) applied accordingly. The four‑year period specified in sub‑section (1) was to be measured from the end of the financial year in which the amount on which the rebate of income‑tax had been allowed was utilised by the company, either wholly or partly, for the purpose of declaring dividends.

The Court noted that the time limit prescribed in that sub‑section was intended to commence from the end of the financial year in which the dividends were actually declared, the dividends having been declared out of profits on which the rebate had been earned at an earlier date. The central question presented was whether sub‑section (10) could be applied to an assessment that had been made before sub‑section (10) came into force.

The assessee‑company argued that sub‑section (10) was given retrospective effect only up to 1 April 1956, and that the language of the sub‑section should be construed to limit its retrospective operation to that date. According to the assessee‑company, the assessment for the year 1953‑54 had become final on 17 April 1954, which was before the 1 April 1956 date from which sub‑section (10) was intended to operate. Consequently, the company contended that the provisions of section 35(10) could be invoked only where dividends were declared after 1 April 1956 and not where the declaration had taken place earlier.

The assessee‑company relied upon the Supreme Court’s decision in Income‑tax Officer v. Habibullah (1) and also referred to a subsequent decision, Second Additional Income‑tax Officer v. Atmala Nagaraj (2). The learned brother Das, J., following the reasoning in Habibullah, held that the assessee‑company’s contention was well‑founded and expressed the view that the decision in Atmala Nagaraj might require reconsideration. Accordingly, he ordered the reversal of the judgment and order of the High Court.

In the present judgment, the Court, with due respect, dismissed the appeal. The Court further expressed the opinion that both of the cited cases, which were decided by the same Divisional Bench, might have to be revisited in the future. It observed that the decision in Atmala Nagaraj had followed the reasoning in Habibullah, and that the factual difference between the two cases was limited to a single aspect, which was insufficient to remove Atmala Nagaraj from the ratio decidendi of the earlier case. The Court indicated that those two cases would be dealt with at a later stage.

The Court then reminded that the Income‑tax Act imposes a tax charge for each assessment year, and that each assessment year corresponds to a year of account, commonly referred to as the year of account. The applicable tax rate for an assessment year is enacted by the annual Finance Act. The citations to the authorities are as follows: (1) [1962] Supp. 2 S.C.R. 716; (2) [1962] 46 T.T.R. 609. The rate at which the tax is…

In this matter, the Court explained that the amount of tax that is to be levied is prescribed by an annual Finance Act for each assessment year. The assessment year is identical with the financial year. By its nature, when the Income‑Tax Act is amended during the middle of an assessment year, the amendment is intended to operate from the first day of that assessment year and therefore it affects income that was earned before the amendment was made. Because an amendment cannot be applied only to part of a year, every such amendment is drafted so that it covers an entire assessment year, whether that year is the one presently in progress, an earlier year or a later year. Consequently, amendments are given retrospective effect from 1 April of the same year, or of a preceding year, or they are given prospective effect for a future assessment year. Normally, the law that is in force on 1 April of any assessment year governs the assessments that are made for that year, but the statute may, either expressly or by necessary implication, provide for a broader retrospective operation. The date on which an amendment becomes effective is the commencement date specified in the amendment, and the statute is read as amended from that date forward. Under ordinary principles, a statute does not operate retrospectively on substantial rights that had become fixed before the commencement date of the statute. However, this principle is not absolute. The legislature may affect such rights by enacting a provision that is expressly retrospective or by using language that necessarily produces a retrospective effect, and such language may give the amendment a degree of retrospectivity that exceeds what is provided by the commencement clause. When this occurs, the provision operates from a date earlier than its formal commencement and alters rights that would otherwise have continued undisturbed. The Court further reminded that if the Income‑Tax Act specifies a period within which tax for a particular assessment year may be assessed, the tax department is barred from making an assessment after that period expires. In the absence of a prescribed period, an assessment may be made at any time, but once an assessment is finally completed it becomes conclusive. After a final assessment has been rendered, it may be reopened only to correct a mistake apparent from the record under section 35, or to reassess where income has escaped assessment under section 34. Both of these provisions prescribe their own limitation periods for action, and all such periods – whether for the original assessment, for rectification, or for reassessment – merely create a statutory bar after the prescribed time has elapsed, thereby limiting the machinery created by the Income‑Tax Act for assessing and levying tax. These bars do not confer a special exemption on the taxpayer nor do they absolve the taxpayer of liability upon their expiry. The liability may become enforceable again only if the statutory bar is removed and the taxpayer is once more brought within the jurisdiction of the tax machinery, provided that the law expressly or by clear implication permits such jurisdiction.

The Court observed that the tax administration could be brought within its machinery by virtue of a newly created statutory power, but only if the legislation expressly or by clear implication conferred such jurisdiction. Where the wording of the statute conveyed an unambiguous meaning, that meaning had to be given effect, and when the language expressly declared or clearly implied retrospective operation, the commencement provision could not limit that effect. The amendment under consideration had been enacted by the Finance Act, 1956 (Act 18 of 1956). Section 2 of that Act specified that it applied to the financial year commencing on 1 April 1956 and that it fixed the tax rates for the assessment year beginning on that date. In addition, the Finance Act amended the Income‑Tax Act by inserting sections 3 through 35. Section 28 of the Finance Act then set out the dates on which these newly inserted sections would take effect. It provided that the amendments made by section 4 and clause (b) of section 15 of the Income‑Tax Act were deemed to have come into force on 1 April 1955, while the amendments embodied in sections 3 to 27 inclusive were deemed to have come into force on 1 April 1956. Sub‑section (10) was introduced into section 35 of the Income‑Tax Act by section 19 of the Finance Act. The Court noted that, absent any additional language, that sub‑section would have operated only from 1 April 1956; however, the wording of the sub‑section expressly conferred a retrospective operation in clear and unambiguous terms, leaving no room for doubt. Consequently, the Court rejected any reliance on Lord Justice Bowmen’s dictum in Reid v Reid, which cautioned that statutes are ordinarily prospective unless the language becomes uncertain. Section 35 dealt with the rectification of mistakes apparent from the record, and sub‑section (10) created a new basis for such rectification. While section 35 already prescribed a four‑year period from the date of assessment for correcting errors, the newly introduced sub‑section allowed rectification in additional circumstances and within a new time limit. The Court explained that the specific circumstances outlined in the sub‑section were crucial to determining its retrospective effect. The Court then quoted the operative portion of sub‑section (10), which stated that where, in any assessment for the years beginning 1 April 1948 to 1955 inclusive, a rebate of income‑tax had been allowed and the amount on which that rebate was granted was later used for declaring dividends, that amount would be deemed to have been the subject of incorrect relief, and the Income‑Tax Officer was required to recompute the tax as if the recomputation had not been made.

In this provision the Court observed that the amendment created a mechanism for correcting a mistake that is evident from the record, and that the rules laid down in subsection (1) would apply to such a correction. Accordingly, the four‑year period for exercising the power was to be counted from the end of the financial year in which the amount on which an income‑tax rebate had been allowed was used to declare dividends. The purpose of the new subsection was to permit the recall of a rebate that had been granted in any assessment covering the period from 1 April 1948 to 31 March 1956, provided that certain conditions were satisfied.

At the outset, the subsection referred to assessment years that were not covered by Section 28, which had fixed its commencement as 1 April 1956. The Court rejected the argument advanced by counsel for the assessee that the reference to those years was merely a historical illustration. The language “in any of the assessments for the years …” indicated that rectification could be sought with respect to each of those assessments. The years were singled out individually by the use of the word “any”, showing that the legislature in 1956 intended to speak of every assessment year back to 1 April 1948. The Court held that the wording was unmistakably retrospective and could not be dismissed as a barren reference to history.

The Court further supported this view by examining the phrase “and subsequently the amount … is availed of for declaring dividends in any year”. After enumerating the individual years, the statute mentioned a later event – the declaration of dividends from the amount on which a rebate had been granted. The term “subsequently” was interpreted as referring to a time after the assessments for the years beginning 1 April 1948 to 31 March 1955, not necessarily after the amendment itself. The only requirement was that the dividend be declared after the rebate had been given; this condition did not imply any limitation based on the commencement date of the subsection.

Turning to the operative clause, the Court explained that if, in any earlier assessment among those years, a rebate was allowed and thereafter, in any year, a dividend was declared using the amount on which the rebate had been granted, that amount would be deemed to have resulted from an incorrect relief. Although this legal fiction became effective on 1 April 1956, the statute did not stipulate that the facts giving rise to it must also occur after that date. Thus, while the provision could be applied only from 1 April 1956 onward, it was intended to operate retrospectively to recover rebates that the law now considered to have been incorrectly given. The recall of the rebate was therefore available after the enactment of subsection (10), but the circumstances triggering the power could arise either before or after the subsection’s commencement. The Court noted that the sole limitation on the exercise of this power was the four‑year time frame prescribed for the Income‑Tax Officer, and that the discussion would continue from that point.

The Court noted that the statutory limitation placed on the Income‑tax Officer was that he could retrospectively examine only a period of four years, the period being measured from the end of the financial year in which the dividend was declared to the date on which the officer took action. In the factual situation before the Court, the assessee company had declared dividends during the calendar year 1952. The assessment year that corresponded to that dividend was the year running from 1‑April‑1953 to 31‑March‑1954. A notice dated 18‑March‑1958, addressed to the assessee and requiring it to show cause, fell within the four‑year window calculated from the end of the financial year 31‑March‑1954, the year in which the amount on which a rebate of income‑tax had been claimed for the purpose of declaring the dividend was availed. Consequently, the notice complied with the requirement of the relevant sub‑section, which had become effective on 1‑April‑1956. The Court therefore held that the furthest point to which the Income‑tax Officer could legitimately extend his power was the conclusion of the assessment year 1952. Any dividend declared after 1‑April‑1952, drawn from accumulated profits of any year in which the rebate had been earned, would remain within the temporal scope for recalling the rebate. In contrast, a dividend declared before 1‑April‑1952 would lie outside the officer’s authority to recall the rebate.

The Court emphasized that this interpretation was the sole meaning that could be derived from the plain words of the provision. To adopt any broader construction would render sub‑section (10) ineffective, because a company, aware that a rebate might be recalled, would be disinclined to declare dividends after 1‑April‑1956 from amounts on which the rebate had previously been claimed. If such an alternate meaning were accepted, sub‑section (10) would become a dead letter, incapable of practical operation. The Court explained that the amendment embodied in the sub‑section was clearly intended to address the observed practice whereby rebates were originally earned and subsequently used to enrich shareholders. The legislative change therefore articulated a precise remedial mechanism.

The Court then turned to the decisions reported in Habibullah’s case and Atmala Nagaraj’s case. In both authorities the Supreme Court was called upon to interpret sub‑section (5) of the Income‑tax Act, which had been introduced by the Indian Income‑tax (Amendment) Act, 1953 and was made effective from 1‑April‑1952. Each case involved a final assessment of the incomes of partners in a registered firm, followed later by an assessment of the firm itself that revealed the partners’ share of income to be larger than what had been previously assessed in their individual returns. Prior to the introduction of sub‑section (5), Section 35(1) allowed rectification only where a mistake was apparent from the record, and the records of the firm could not be cross‑read with those of the partners to detect an error. This created a procedural impasse. The Court cited the Privy Council’s ruling in Commissioner of Income‑tax v. Khemchand Ramdas, noting that once a final assessment was rendered it could not be reopened except under the specific circumstances enumerated in Sections 34 and 35 of the Act and within the time limits prescribed therein.

In the earlier discussion the Court observed that the statutory provision set a limited period within which any rectification could be effected, a period that was defined by the words “the time limited by those acts.” Consequently, the Court noted that, unless the original subsection 35 itself permitted such rectification, the statutory mechanism offered no assistance. It was a frequent situation that the final assessment of a registered firm took many years to be completed; by the time the firm’s assessment was finally rendered, the period prescribed in subsection (1) of section 35 had already expired. To remedy this difficulty Parliament enacted an amendment that was scheduled to take effect on 1 April 1952. The amendment introduced two substantive provisions in subsection (5) of section 35. First, the amendment stipulated that when the assessment of a firm disclosed that the income of its partners had not been correctly included in the partners’ individual assessments, that omission would be deemed to disclose an error in the record of the partners’ assessment. Second, the amendment altered the manner in which the four‑year limitation period was to be calculated: instead of measuring the period from the date of the assessment order issued to the partners, the period would be measured from the date of the final assessment order passed in respect of the firm. The amendment therefore made clear that the power to order rectification could be exercised from 1 April 1952 onward. However, a question arose as to whether that power could be invoked only when the firm’s assessment order itself was passed after the amendment became effective. In other words, could the assessment of partners be reopened only if the firm’s final order was issued post‑April 1952? The Court examined this issue in the earlier judgment known as Habibullah’s case. In that decision the Court first referred to the principle of finality that attaches to a final assessment, a principle articulated by the Privy Council in Commissioner of Income‑Tax v. Khemchand Ramdas, at page 248, and reiterated in the subsequent authority. The Court then turned to the commencement date of subsection (5), which the amendment had fixed retrospectively as 1 April 1952, and held that the new subsection could not be used to reopen assessments that had become final before that commencement date. The Court distinguished the language of subsection (5) from that of subsection (6), which had been introduced simultaneously.

The factual chronology in Habibullah’s case was set out as follows: the partners’ assessment for the year 1946‑47 was made on 22 February 1950; the partners’ assessment for 1947‑48 was made on an unspecified date; the registered firm’s assessment for 1946‑47 was made on 31 October 1950; the firm’s assessment for 1947‑48 was made on 30 June 1951. Subsection (5) to section 35 was introduced with effect from 1 April 1952, and an order under subsection (5) was issued on 27 March 1954. If subsection (5) were applicable to this case, it would be evident that the four‑year limitation period had not elapsed between the earlier firm assessment dated 31 October 1950 and the rectification order dated 27 March 1954. Although it is true that both assessments of the firm were rendered before 1 April 1952, the wording of subsection (5) does not expressly restrict the exercise of the power to situations where the firm’s assessment was made after that date, and the Court found that such an interpretation would be difficult to sustain. The amendment created a legal fiction, effective from 1 April 1952, that the partners’ assessments now disclosed a mistake; if that fiction and the remainder of subsection (5) were given their full logical effect, the partners’ assessments could be reopened and rectified. Nevertheless, the Court held otherwise. The dominant reason for the decision was that the partners’ assessments had become final before 1 April 1952, and under the law as it stood at that time there was no error in the partners’ records; consequently, subsection (5) could not be invoked to reopen those assessments.

Having been enacted with retrospective effect, the provision could not be given any further retroactive application beyond the date of 1‑April‑1952. The fact that the firm’s assessment also fell before 1‑April‑1952 was not advanced as a reason, and in any event it was of little relevance. That circumstance neither added to nor detracted from the finality that had attached to the partners’ assessment, which was already final on 22‑February‑1952. The statute clearly referred to the final order in the firm’s assessment as the starting point, because the firm’s assessments normally required a long period to reach their own finality. However, nothing in the provision indicated that this new “terminus a quo” had to occur after 1‑April‑1952 before sub‑section (5) could be invoked. The language of the sub‑section was entirely indifferent to that aspect. In Atmala Nagaraj’s case (1) the assessment of the partners had also been completed before 22‑January‑1952, and the final order of the firm, dated 1‑April‑1952, was considered subject to sections 34 and 35. Although the firm’s assessment was completed after 1‑April‑1952, that distinction made no difference to the finality that had been achieved on 22‑January‑1952. The Court did not express a definitive view on sub‑section (5); it indicated that such a view should be left to a future decision. The Court further noted that the two earlier decisions might need to be revisited on a later occasion. When that occasion arises, the questions that would arise are: (i) whether finality attached in Habibullah’s case (2) to the partners’ assessment under the law as it then stood from 22‑February‑1950 (the partners’ assessment) or from the firm’s assessments dated 31‑October‑1950 and 30‑June‑1951; (ii) whether any finality existed concerning the partners’ assessment in Atmala Nagaraj’s case (1) between 22‑January‑1952 and 1‑April‑1952, the commencement date of sub‑section (5) (see [1962] 46 I.T.R. 609 and (1962) Supp. 2 S.C.R. 716); and (iii) whether the existence of finality, if any, was controlled in one case by the fact that the firm’s assessment occurred before 1‑April‑1952 and in the other by the fact that it occurred after that date. The Court highlighted that these questions pinpoint the only point of difference between the two cases and expressly refrained from opining on them.

In view of the discussion on the interpretation of section 35(10), the Court held that the judgment of the High Court was correct. Accordingly, the appeal was dismissed with costs. By order of the Court, in accordance with the majority opinion, the appeal was dismissed with costs and the matter was closed.