The judgment of the court was delivered by
SHAH J.--Messrs. Lal and Company, hereinafter called the
assessee, carry on business in Bombay as commission agents. In the course of
assessment proceedings for the year 1954-55 the assessee's books of account were
examined by the Income-tax Officer and it was noticed that the assessee had
business connections with certain non-resident parties. On March 12,1957, the
Income-tax Officer issued a notice calling upon the assessee to show cause why
in respect of the assessment year 1954-55 the assessee should not be treated
under section 43 of the Indian Income-tax Act, 1922, as an agent in respect of
twenty-five non-resident parties named in the notice. The assessee denied that
he had " direct dealings " with any non-resident party and that in any
event the proposed action was barred because the period prescribed for
initiation of proceeding had expired, and requested the Income-tax Officer to
drop the proceeding. The Income-tax Officer, B-III Ward, Bombay, issued on March
27, 1957, a notice under section 34 of the Indian Income-tax Act for assessment
of the assessee as an agent of the twenty-five named non-resident parties. The
assessee submitted a return showing his income as " nil ". The
Income-tax Officer held that the transactions disclosed from the books of
account of the assessee clearly showed that the assessee " had regular
business connection with " non-resident parties, that through the, assessee
those non-resident parties were receiving income, profits and gains and section
43 was clearly applicable to the assessee, there being definite business
connection between the assessee and the named non-residents. He, therefore,
treated the assessee as agent of the non-resident parties under section 43 of
the Act.
The Income-tax Officer also rejected the contention of the
assessee that action under section 34 was barred at the date of the notice
issued to the assessee. Relying upon the first proviso to section 34(1)(b)(iii)
inserted by the Finance Act, 1956, the Income-tax Officer held that the
legislature had by amendment extended the " time-limit in clear and express
terms so as to cover " action under section 34 against a person on whom the
assessment or reassessment is to be made as an agent of a non-resident person
under section 43 of the Act for the assessment year 1954-55, and accordingly
assessed the income of the assessee at Rs. 60,684, estimating the income of the
parties residing outside the taxable territories, in the absence of accounts, to
be Rs. 50,000.
The assessee then filed a petition under article 226 of
the Constitution in the High Court of Judicature at Bombay praying that a writ
in the nature of mandamus or prohibition do issue restraining and prohibiting
the Income-tax Officer from giving effect to or taking any steps or proceedings
by way of recovery or otherwise in pursuance of the orders of assessment. The
assessee pleaded, inter alia, that the proceedings for assessment under section
34 of the Act commenced by the Income-tax Officer after the expiry of one year
from the end of the assessment year 1954-55 were without the authority of law.
The High Court of Bombay, following its earlier judgment in S. C. Prashar v.
Vasantsen Dwarkadas, held that at the date when the notice was issued, by reason
of the proviso which was in operation under section 34(1) in respect of the
assessment year 1954-55, the notice was out of time and that the period provided
thereby could not be extended by the Finance Act of 1956 so as to authorise the
Income-tax Officer to issue a notice for assessment or reassessment of the
assessee as statutory agent of a party, residing outside the taxable territory.
In the view of the High Court the notice dated March 27, 1957, was invalid, and
a valid notice being a condition precedent to the exercise of jurisdiction under
section 34, the proceeding under section 34 was not maintainable. Against the
order of the High Court issuing writs prayed for by the assessee, with
certificate of fitness this appeal is preferred by the Income-tax Officer,
Bombay.
In order to appreciate the contention raised by the
assessee and which has found favour with the High Court, it is necessary to
refer to the relevant provisions of section 34, as they stood before the section
was amended by the Finance Act, 1956. The relevant clauses prescribing the
period within which notice may be issued read as follows :
" (1) If--...
he may in cases falling under clause (a) at any time
within eight years and in cases falling under clause (b) at any time within four
years of the end of that year, serve on the assessee,...a notice containing all
or any of the requirements which may be included in a notice under sub-section
(2) of section 22 and may proceed to assess or reassess such income, profits or
gains or recompute the loss or depreciation allowance ;
Provided that--...
(iii) Where the assessment made or to be made is an
assessment made or to be made on a person deemed to be the agent of a
non-resident person under section 43, this sub-section shall have effect as if
for the periods of eight years and four years a period of one year was
substituted. "
By section 18 of the Finance Act, 1956, section 34 was
extensively amended and clause (iii) of the proviso was substituted by the
following proviso :
" Provided further that the Income-tax Officer shall
not issue a notice under this sub-section for any year after the expiry of two
years from that year if the person on whom an assessment or reassessment is to
be made in pursuance of the notice is a person deemed to be the agent of a
non-resident person under section 43. "
Initially a notice of assessment or reassessment under
section 34(1) against a person deemed to be an agent of a non-resident person
under section 43 could not be issued after the expiry of one year from the end
of the year of assessment : under the amended section this period was extended
to two years from the end of the relevant assessment year. In the course of
assessment to income-tax for the year 1954-55 the relevant law applicable
prescribed that a notice of assessment or reassessment against a person deemed
to be an agent under section 43 could not be issued after the expiry of one year
from the end of the assessment year. That period expired on March 31, 1956, and
after that date no notice could be issued, relying upon the law as it stood
before amendment for assessment or reassessment treating the assessee as an
agent of a non-resident under section 43. But the Income-tax Officer sought
recourse to the amended provision which gave him a period of two years from the
end of the assessment year, for initiating assessment proceedings, and the
authority of the Income-tax Officer to so act is challenged by the assessee.
Section 18 of the Finance Act, 1956, is, it is common
ground, not given retrospective operation before April 1, 1956. The question
then is, whether the Income-tax Officer may issue a notice of assessment to a
person as an agent of a non-resident party under the amended provision when the
period prescribed for such a notice had before the amended Act came into force
expired ? Indisputably the period for serving a notice of reassessment under the
unamended section had expired, and there was in the Act, as it then stood, no
provision for extending the period beyond the end of one year from the year of
assessment. The Income-tax Officer could therefore commence a proceeding under
section 34 on March 27, 1957, only if the amended section applied and not
otherwise. The amending Act came into force after the period provided for the
issue of a notice under section 34 before it was amended had expired. It is true
that there was no determinable point of time between the expiry of the
prescribed time within which the notice could have been issued against the
assessee under section 34, proviso (iii), before it was amended. But there was
no overlapping period either. Prima facie, on the expiry of the period
prescribed by section 34 as it originally stood, there was no scope for issuing
a notice unless the legislature expressly gave power to the Income-tax Officer
to issue notice under the amended section notwithstanding the expiry of the
period under the unamended provision or unless there was overlapping of the
period within which notice could be issued under the old and the amended
provision. But counsel for the Commissioner submitted that at no time was the
Income-tax Officer bereft of authority to issue a notice under section 34 of the
Indian Income-tax Act, 1922. He submitted that till the midnight of March 31,
1956, notice could be issued in exercise of the powers conferred by section 34
proviso (iii), before it was amended and notice of assessment or reassessment
could also be issued under the amended provision immediately thereafter in
exercise of the powers conferred by section 18 of the Finance Act, 1956. Counsel
relied upon the rule contained in section 5(3) of the General Clauses Act that,
unless the contrary is expressed, a Central Act or Regulation shall be construed
as coming into operation immediately on the expiration of the day preceding its
commencement. It was submitted that this is merely a statutory recognition of
the rule which is well-settled that where a statute names a date on which it
shall come into operation, it shall be deemed to come into force immediately on
the expiration of the previous day and the law does not take into consideration
fractions of a day.
Reliance was placed by counsel upon Tomlinson v. Bullock
and English v. Cliff. In Tomlinson's case, the question was whether an order of
affiliation could be made on an application made in respect of a child born at
any time of the day on August 10, 1872, under the Bastardy Act (35 and 36 Vict.,
c. 65). In an application made for an order of affiliation, it was held that the
order could competently be made in respect of a child born at any time of the
day on the 10th of August, 1872, because the Act, in the contemplation of law,
for this purpose came into effect from the commencement of the day on which it
received the royal assent, and that normally an Act which comes into operation
becomes law as soon as it commences. In English v. Cliff, it was held by the
Court of Chancery that the trustees under a deed of settlement dated May 13,
1892, who stood possessed of an estate during the term of twenty-one years from
the date of settlement upon trust to Apply the rents and profits mentioned
therein and who were authorised at the expiration of the said period to sell the
estate, could competently sell it and their action was not liable to be
challenged as infringing the rule of perpetuity. It was held in that case that,
the determination of the term of twenty-one years and the commencement of the
trust for sale arising at one and the same moment, the trust was not void for
remoteness on the ground that it was limited to take effect at the expiration of
the term. Neither of these cases has, in our judgment, any application to the
principle applicable in the present case. The power to issue a notice under the
unamended Act came to an end on March 31, 1956. Under that Act no notice could
thereafter be issued. It is true that by the amendment made by section 18 of the
Finance Act, 1956, a notice could be issued within two years from the end of the
year of assessment. But the application of the amended Act is subject to the
principle that, unless otherwise provided, if the right to act under the earlier
statute has come to an end, it could not be revived by the subsequent amendment
which extended the period of limitation. The right to issue a notice under the
earlier Act came to an end before the new Act came into force. There was
undoubtedly no determinable point of time between the expiry of the earlier Act
and the commencement of the new Act ; but that would not, in our judgment,
affect the application of this rule.
Reliance was also placed by counsel for the Commissioner
upon the rule which has prevailed in the Supreme Court of the United States of
America that " a new statute should be construed as a continuation of the
old one with the modifications contained in the new one, although it formally
repeals the old statute, when it re-enacts its substantial provisions and the
two statutes are almost identical " (Bear Lake and River Water Works and
Irrigation Company and Jarvis Conklin Mortgage Trust Company v. William Garland
and Corey Brothers and Co.). It appears to have been recognised in the Supreme
Court of the United States of America in Pacific Mail S. S. Co. v. Jolifee, that
repeal in terms of a former statute does not necessarily indicate an intention
of the legislature thereby to impair rights which had arisen under the Act which
was repealed. As the provisions of the new Act took effect simultaneously with
the repeal of the old one, the Supreme Court held that the new one might more
properly be said to be substituted in the place of the old one, and to continue
in force, with modifications, the provisions of the old Act, instead of
abrogating or annulling them and re-enacting the same as a new and original Act.
Apart from the question whether the rule so enunciated is applicable to the
interpretation of Indian statutes, in this case we are not concerned with
re-enactment of a statute. The statute abrogates one rule of limitation, and
enacts another rule with a limited retrospective operation. To such a case the
rule enunciated by the Supreme Court of America, assuming it applies,
attributing to the Legislalature an intention to continue in force the
provisions of the old Act, with a modification, so as to give to the new statute
in substance operation retrospectively from the date on which the old statute
was enacted, can have no application. We do not think that any such intention
may be attributed to the legislature in enacting section 18 of the Finance Act,
1956, so as to make it the basis of a liability to taxation after the expiry of
the period prescribed in that behalf by the legislature.
Counsel also submitted that section 34 lays down a rule of
limitation for commencing an action for assessment or reassessment, and that in
the absence of an express provision to the contrary, a statute of limitation in
operation at a given time governs all proceedings from the moment of its
enactment even though the cause of action on which the proceeding was based came
into existence before the Act was enacted. Equating a proceeding under section
34 of the Indian Income-tax Act with a suit or a proceeding in a civil court,
counsel said that the law of limitation being a law of procedure, assessment
proceedings including proceedings for reassessment are governed by the law in
force at the date on which they are instituted, and that the rule that the
repeal of a statute without express words or clear implication in the repealing
statute, cannot take away a right vested in a party acquired under the repealed
statute when it was in force, is a rule of prescription and not of procedure,
and notwithstanding general observations to the contrary in certain decisions,
applies only to those actions in which by the determination of the period
prescribed, a right to institute an action for possession of property is
extinguished. Counsel relies in support of the plea on Baleswar v. Latafat. It
is unnecessary to dilate upon this argument in any detail, or to enter upon an
analysis of the numerous cases which were mentioned at the Bar to determine
whether the rule that without an express provision, or a clear implication
arising from the amending statute, rights acquired under the repealed statute by
the determination of the period of limitation prescribed thereby cannot be
deemed to be revived, applies to suits for possession only. It may be sufficient
to make two comments on the argument. The rule has in fact been applied to suits
other than suits for possession : e.g., Mahomed Mehdi Faya v. Sakinabai (a suit
for restitution of conjugal rights) ; M. Krishnaswami Naicker v. A. Thiruvengada
Mudaliar (a suit for recovery of a debt) ; Shumbhoonath Saha v. Guruchurn Lahiri
(an application for execution) ; and Nepal Chandra Roy Chowdhury v. Niroda
Sundari Ghose (an application for setting aside an ex parte decree). Again soon
after it was delivered the authority of Baleswar's case was weakened by the
judgment in Jagdish v. Saligram where the court doubted the correctness of the
earlier view.
A proceeding for assessment is not a suit for adjudication
of a civil dispute. That an income-tax proceeding is in the nature of a judicial
proceeding between contesting parties, is a matter which is not capable of even
a plausible argument. The income-tax authorities who have power to assess and
recover tax are not acting as judges deciding a litigation between the citizen
and the State : they are administrative authorities whose proceedings are
regulated by statute, but whose function is to estimate the income of the
taxpayer and to assess him to tax on the basis of that estimate. Tax legislation
necessitates the setting up of machinery to ascertain the taxable income, and to
assess tax on the income, but that does not impress the proceeding with the
character of an action between the citizen and the State : Commissioners of
Inland Revenue v. Sneath and Shell Company of Australia Ltd. v. Federal
Commissioner of Taxation.
Again the period prescribed by section 34 for assessment
is not a period of limitation. The section in terms imposes a fetter upon the
power of the Income-tax Officer to bring to tax escaped income. It prescribes
different periods in different classes of cases for enforcement of the right of
the State to recover tax. It was observed by this court in Ahmedabad
Manufacturing and Calico Printing Co. Ltd. v. S. G. Mehta, Income-tax Officer :
" It must be remembered that if the Income-tax Act
prescribes a period during which the tax due in any particular assessment year
may be assessed, then on the expiry of that period the department cannot make an
assessment. Where no period is prescribed the assessment can be completed at any
time but once completed it is final. Once a final assessment has been made, it
can only be reopened to rectify a mistake apparent from the record (section 35)
or to reassess where there has been an escapement of assessment of income for
one reason or another (section 34). Both these sections which enable reopening
of back assessments provide their own periods of time for action but all these
periods of time, whether for the first assessment or for rectification, or for
reassessment, merely create a bar when that time passed against the machinery
set up by the Income-tax Act for the assessment and levy of the tax. They do not
create an exemption in favour of the assessee or grant an absolution on the
expiry of the period. The liability is not enforceable but the tax may again
become exigible if the bar is removed and the taxpayer is brought within the
jurisdiction of the said machinery by reason of a new power. This is, of course,
subject to the condition that the law must say that such is the jurisdiction,
either expressly or by clear implication. If the language of the law has that
clear meaning, it must be given that effect and where the language expressly so
declares or clearly implies it, the retrospective operation is not controlled by
the commencement clause. "
Counsel for the Commissioner sought to derive some support
from Income-tax Officer Companies District, Calcutta v. Calcutta Discount
Company Ltd. in which Chakravartti C.J., dealing with the effect of the
Income-tax and Business Profits Tax (Amendment) Act, 1948, observed :
" The plain effect of the substitution of the new
section 34 with effect from March 30, 1948, is that from that date the
Income-tax Act is to be read as including the new section as a part thereof and
if it is to be so read, the further effect of the express language of the
section is that so far as cases coming within clause (a) of sub-section (1) are
concerned all assessment years ending within eight years from March 30, 1948,
and from subsequent dates, are within its purview and it will apply to them,
provided the notice contemplated is given within such eight years. What is not
within the purview of the section is an assessment year which ended before eight
years from March 30, 1948."
But it may be recalled that the amending Act of 1948, with
which the court was concerned in Calcutta Discount Company's case, came into
force on September 8, 1948, but section 1(2) prescribed that the amendment in
section 34 of the Income-tax Act, 1922, shall be deemed to have come into force
on March 30, 1948, and the period under the unamended section within which
notice could be issued under section 34(3) against the assessee-company ended on
March 31, 1951. Before that date the amending Act came into operation, and at no
time had the right to reassess become barred.
In considering whether the amended statute applies, the
question is one of interpretation, i.e., to ascertain whether it was the
intention of the legislature to deprive a taxpayer of the plea that action for
assessment or reassessment could not be commenced, on the ground that before the
amending Act became effective, it was barred. Therefore the view that even when
the right to assess or reassess has lapsed on account of the expiry of the
period of limitation prescribed under the earlier statute, the Income-tax
Officer can exercise his powers to assess or reassess under the amending statute
which gives an extended period of limitation, was not accepted in Calcutta
Discount Company's case.
As we have already pointed out, the right to commence a
proceeding for assessment against the assessee as an agent of a non-resident
party under the Income-tax Act before it was amended, ended on March 31, 1956.
It is true that under the amending Act by section 18 of the Finance Act, 1956,
authority was conferred upon the Income-tax Officer to assess a person as an
agent of a foreign party under section 43 within two years from the end of the
year of assessment. But authority of the Income-tax Officer under the Act before
it was amended by the Finance Act of 1956, having already come to an end, the
amending provision will not assist him to commence a proceeding even though at
the date when he issued the notice it is within the period provided by that
amending Act. This will be so, notwithstanding the fact that there has been no
determinable point of time between the expiry of the time provided under the old
Act and the commencement of the amending Act. The legislature has given to
section 18 of the Finance Act, 1956, only a limited retrospective operation,
i.e., up to April 1 1956, only. That provision must be read subject to the rule
that in the absence of an express provision or clear implication, the
legislature does not intend to attribute to the amending provision a greater
retrospectivity than is expressly mentioned, nor to authorise the Income-tax
Officer to commence proceedings which before the new Act came into force had by
the expiry of the period provided become barred.
The appeal fails and is dismissed with costs.
Appeal dismissed
