1962 (4) TMI 6 - SC - Income Tax

How far section 35(5) is retrospective and whether it would apply to original assessments completed before April 1 1952 is no longer res integra? Held that - Here the original assessment was made before the amendment and to that assessment the amended provision cannot still be made applicable even though the assessments of the firms were after April 1 1952. The assessment of the respondents was a final assessment before April 1 1952 and sub-section (5) has not been made applicable to such assessment either expressly or by implication. In our opinion sub-section (5) could not be used in this case and the decision of the High Court was right. Being a final assessment it could be rectified only under the law as it stood then. That law did not include the fiction enacted by sub-section (5) which when enacted could not be used in those cases which had been finally closed before April 1 1952. Appeal dismissed.

Summary

Issues:
1. Validity of revised assessments made under section 35 of the Income-tax Act.
2. Retroactive application of section 35(5) of the Income-tax Act.
3. Interpretation of the term "mistake apparent from the record" under section 35(1) of the Income-tax Act.
4. Finality of assessments made before the introduction of section 35(5) of the Income-tax Act.

Analysis:

The Supreme Court considered two appeals challenging the revised assessments made under section 35 of the Income-tax Act. The original assessments for the respondents were completed in 1952, with shares of profits from two firms included in their total assessable incomes. The assessments of the firms were completed in 1954, revealing higher aggregate shares of income for the respondents. Subsequently, revised assessment orders were made under section 35, along with additional demands and penalties imposed. The High Court upheld the respondents' petition under article 226 of the Constitution, challenging the revised assessments.

The key issue revolved around the retroactive application of section 35(5) of the Income-tax Act, added in 1953 but effective from 1952. The court clarified that the provision could not be applied to original assessments completed before April 1, 1952. The court emphasized that section 35(5) was not procedural but affected vested rights of the assessee. It was held that the provision could not be used in cases where assessments had been finalized before its introduction, as it did not have retrospective effect beyond April 1, 1952.

Furthermore, the court examined the concept of "mistake apparent from the record" under section 35(1) of the Income-tax Act. It was established that the provision for rectification under sub-section (1) could not be invoked in this case, as there was no error evident from the record of the partners' assessments. The court emphasized that the assessments were final before the enactment of section 35(5) and could only be rectified under the law as it stood at that time.

In conclusion, the court dismissed the appeals, affirming the High Court's decision. It was held that the revised assessments made under section 35 were not valid in this case, as the provision could not be retrospectively applied to assessments finalized before its introduction. The court reiterated that the assessments were final before the relevant amendment and could not be reopened under section 35(5) of the Income-tax Act.