1966 (2) TMI 8 - HC - Income Tax

Revenue seeking to include the income of his minor sons in the total income of the petitioner - proceedings taken under the provisions of s. 16(3)(a)(ii) of the old Act of 1922 are in truth and effect proceedings for assessment - held that the cases are covered by the saving provision of s. 297(2)(a) of the Act of 1961.

Summary

Issues Involved:
1. Applicability of the old Income-tax Act of 1922 or the new Income-tax Act of 1961 to the proceedings.
2. Power and jurisdiction of the Income-tax Officer under the relevant Act to take the proceedings.

Issue-wise Detailed Analysis:

1. Applicability of the Old Income-tax Act of 1922 or the New Income-tax Act of 1961:

Contentions:
- The department argued that the new Income-tax Act of 1961 applies to the proceedings, citing section 297(2) of the Act.
- The petitioner contended that since the assessments were completed before 1962, the old Income-tax Act of 1922 should apply as the new Act cannot have retrospective effect.

Legal Principles:
- Statutes are generally prospective unless expressly or by necessary implication made retrospective.
- Section 297(2) of the new Act saves certain rights and proceedings under the old Act.

Judgment:
- The court held that the old Income-tax Act of 1922 applies to the proceedings. The new Act does not expressly or by necessary implication destroy the rights and liabilities acquired under the old Act.
- Section 297(2)(a) of the new Act saves proceedings for assessment where a return was filed before the commencement of the new Act, thus the old Act governs the present cases.

Reasoning:
- The court referred to established rules of statutory construction which lean against retrospective operation unless clearly intended by the legislature.
- The court found nothing in the new Act that expressly or by necessary implication gives it retrospective effect concerning the proceedings in question.
- Section 6 of the General Clauses Act supports the continuation of rights and liabilities under the repealed Act unless a different intention appears in the new Act.

2. Power and Jurisdiction of the Income-tax Officer:

Contentions:
- The department argued that the Income-tax Officer has the power under section 35(1) and section 35(5) of the old Act to rectify the mistake.
- The petitioner argued that any rectification should have been done within four years from the date of the assessment order, and the current action was beyond that period.

Legal Provisions:
- Section 35(1) allows rectification of mistakes apparent from the record within four years from the date of the assessment order.
- Section 35(5) allows rectification if the share of a partner in a firm's income has not been included or is incorrect, within four years from the date of the final order passed in the case of the firm.

Judgment:
- The court held that the Income-tax Officer did not have the power to take the proceedings under section 35(1) as the period for rectification had expired.
- Section 35(5) was also not applicable as the mistake did not arise from the assessment or reassessment of the firm but from the individual assessments.

Reasoning:
- The court noted that section 35(5) was intended to correct mistakes arising from the assessment of the firm, not from individual assessments.
- The bar of limitation is a jurisdictional bar, and the department cannot bypass it by invoking section 35(5).

Exercise of Discretion under Article 226:
- The court exercised its discretion under Article 226 of the Constitution to quash the proceedings, noting that the bar of limitation affects jurisdiction.
- The court rejected the argument that another remedy was available to the petitioner, as it had already determined that the old Act was applicable.

Conclusion:
The appeals were dismissed, and the court upheld the applicability of the old Income-tax Act of 1922 to the proceedings. The Income-tax Officer was found to lack jurisdiction to take the impugned proceedings under the relevant provisions of the Act. The court exercised its discretion under Article 226 to quash the proceedings initiated by the Income-tax Officer.