1964 (4) TMI 19 - SC - Income Tax

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? Held that - 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. Appeal dismissed.

Issues Involved:
1. Whether the assessee had "direct dealings" with non-resident parties.
2. Whether the action under section 34 of the Indian Income-tax Act, 1922, was barred by limitation.
3. The applicability of the amended section 34 by the Finance Act, 1956, to the assessment year 1954-55.
4. The interpretation of the retrospective operation of the Finance Act, 1956.

Analysis of the Judgment:

1. Direct Dealings with Non-Resident Parties:
The Income-tax Officer (ITO) examined the assessee's books of account and observed that the assessee had business connections with certain non-resident parties. The ITO issued a notice under section 43 of the Indian Income-tax Act, 1922, treating the assessee as an agent for twenty-five non-resident parties. The assessee denied having "direct dealings" with any non-resident party. However, the ITO concluded that the transactions showed a "regular business connection" with non-resident parties, thereby making section 43 applicable.

2. Limitation under Section 34:
The assessee contended that the action under section 34 was barred as the period prescribed for initiation had expired. The ITO issued a notice under section 34 on March 27, 1957, for the assessment year 1954-55. The ITO rejected the contention, relying on the first proviso to section 34(1)(b)(iii) inserted by the Finance Act, 1956, which extended the time limit for such actions.

3. Applicability of Amended Section 34:
The High Court of Bombay held that the notice dated March 27, 1957, was invalid as it was issued after the expiry of the period prescribed by the unamended section 34. The High Court ruled that the Finance Act, 1956, could not retrospectively extend the period for issuing such notices for the assessment year 1954-55. The Supreme Court affirmed this view, stating that the authority to issue a notice under the unamended Act ended on March 31, 1956, and could not be revived by the subsequent amendment.

4. Retrospective Operation of the Finance Act, 1956:
The Supreme Court analyzed whether the amended section 34 had retrospective operation. It was held that section 18 of the Finance Act, 1956, was not given retrospective operation before April 1, 1956. The Court emphasized that unless expressly provided, the legislature does not intend to attribute greater retrospectivity to an amending provision than what is expressly mentioned. The right to issue a notice under the earlier Act had ended, and the amended Act could not revive it.

The Court also discussed the principle that a new statute should be construed as a continuation of the old one with modifications, but found it inapplicable in this case. The Court concluded that the amended section 34 did not authorize the ITO to issue a notice for assessment or reassessment after the expiry of the period under the unamended provision.

Conclusion:
The Supreme Court dismissed the appeal, holding that the notice issued by the ITO was invalid as it was barred by the period of limitation prescribed under the unamended section 34. The Finance Act, 1956, did not have the retrospective effect necessary to validate the notice. The appeal was dismissed with costs.

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