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TMI Blog1953 (3) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... ling upon it to submit fresh returns for the three accounting years, relative to the said three assessment years, with a view to re-assessments of the income. Those notices were issued under SECTION 34, Income-tax Act, as amended by the Income-tax and Business Profits Tax (Amendment) Act, (48 of 1948) on the ground that the Income-tax Officer concerned had reason to believe that the income for each of the years had been under-assessed. 3. After some correspondence, the respondent furnished returns in compliance with the notices on 13-8-1951, doing so under protest, and it returned, as we were informed from the Bar, the same income for each respective year as on the previous occasion. Thereafter, on 18-9-1951, the respondent moved this Court under Art. 226 of the Constitution of India for various reliefs, among them being appropriate writs on the first appellant, directing him to forbear from proceeding further on the basis of the. notices issued and to certify and return to this Court the relevant records in order that the proceedings might be quashed. Bose, J., before whom the application was moved, issued a very comprehensive Rule and by an order made on 26-3-1952, he made the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l transactions and in the nature of mere changes of investments. During the assessments for subsequent years, however, it transpired that the respondent company had in fact been carrying on business in shares and thereupon the income from that source was included in the assessments. The Income-tax Officer, dealing with the subsequent assessments, was in those circumstances led to believe that the income for the three prior years in question had been under-assessed and he recorded the reasons for his belief in the following words: "At the time of the original assessment, the then I.T.O. merely accepted the company's version that the sale of shares were casual transactions and were in the nature of mere change of investments. Now the results of the company's trading from year to year show that the company has really been systematically carrying on a trade in the sale of investments. As such; the company has failed to disclose the true intention behind the sale of shares and as such Section 34(1)(a) is attracted." 7. On those facts, Bose J. held, that the case was not one where there were no materials before the Income-tax Officer on which he could form the belief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded power can legitimately be exercised under the Article, but a valuation of the grounds on which a particular order was made in a pending proceeding, governed by its own special law and provided with its own special remedies, does not appear to me to be one of such directions. Even on the merits, Mr. Mitra's contention does not appear to me to have any substance in it. The expression that the respondent had failed to disclose "the true intention behind the sale of shares" may lack directions, but that deficiency of language is not sufficient to enable the respondent to contend, in view of the circumstances' alleged, that no failure to disclose facts was being: complained of. On the facts as stated by the Income-tax Officer, it is clear that there had been a failure to disclose the fact that the respondent was a dealer in shares and what the Income-tax Officer meant by the language used by him was that the respondent had not disclosed that the sale of shares had been of the nature of a trading sale, made in pursuance of an intention to make a business profit and not of the nature of a change of investment, made in pursuance of an intention to put certain capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the requirements which may be included in a notice under Sub-section (2) of Section 22 and may proceed to assess or re-assess such income, profits or gains, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice under that sub-section: Provided that the tax shall be charged at the rate at which it would have been charged, had the income, profits or gains not escaped assessment or full assessment, as the case may be. X X X X (2) No order of assessment under s. 23 or of assessment or re-assessment under Sub-section (1) of this section, shall be made after the expiry, in any case to which Clause (c) of Sub-section (1) of Section 28 applies, of eight years, and in any other case, of four years from the end of the year in which the income, profits or gains were first assessable." 13. By Sections 2 to 12 of Act 48 of 1948, fairly extensive amendments of the Income-tax were made. Section 34 as dealt with by S. 8 and what that section did was not to make alterations in the old section, but to replace it completely. by a new section of a self-contained character. The relevant portions of the substituted section are as follows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Sub-section (1) has been issued within the time therein limited, the assessment or re-assessment to be made in pursuance of such notice may be made before the expiry of one year from date of the service of the notice, even if such period exceeds the period of eight years or four years, as the case may be." 14. As already stated, amendments of the Income-tax Act were made by Sections 2 to 12 of Act 48 of 1948. That Act itself came into force on 8-9-1948 but, by Section 1(2), it prescribed the dates on which certain of its provisions and certain amendments made to the Income-tax Act were to come into force. Section 1(2) is in the following terms: "Sections 3 to 12 shall be deemed to have come into force on 30-3-1948 and the amendment made in the Income-tax Act, 1922 (11 of 1922) by Section 2 shall be deemed to be operative so as to apply in relation to all assessments subsequent to the assessment for the year ending on 31-3-1948." 15. The first argument of the appellants was that by reason of the provisions of Section 1(2) of the amending Act, the new Section 34 was to be deemed to have been on the statute-book on 30-3-1948 and if it was there on that date, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force on that date and not on any earlier date. The date on which it came into operation cannot be pushed back further. But given that the section came into operation on 30-3-1948, in deciding in what manner it would operate, it is. pertinent to enquire first what the section itself says. The learned Judge has observed that "the amendment is expressly made retrospective so far as Section 34 is concerned from 30-3-1948", but that really is not the retrospective operation of Section 34, but of the amending Act which, though it became law only on 8-9-1948, operates, so far as it substituted a new section for the old Section 34, with effect from 30-3-1948. The effect of Section 8 of the amending Act so operating with respect to Section 34 was that it placed the section on the statute-book as on 30-3-1948 and made it a part of the Income-tax Act on and from that date. But what was the effect of such introduction of the new Section 34 on the Income-tax Act itself? The effect was that the Income-tax Act, speaking on and from 30-3-1948 wich the new section as a part of it, began to say in the words of the section itself, and therefore expressly by its own words, that in cases co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable to such income. It was picturesquely urged that, by itself, the Income-tax Act was an inert machine which could move only if the power of movement was imparted to it by a Finance Act and, therefore, where the Act was not applied to the income assessable in a particular year by the relevant Finance Act, such income remained unaffected by its provisions. As a corollary to that provision, it was argued that what the annual Finance Act made applicable to the income assessable in the year, was the Income-tax Act, as it stood at the date of the Finance Act and therefore amendments of the Income-tax Act, subsequently made, could not apply to such income, as there would be no Finance Act to make them applicable. Accordingly it was contended that the fact that the new Section 34, coming into force on 30-3-1948, authorised the issue of a notice in respect of assessment years ended within eight years was not sufficient to make the section practically operative in respect of years ended prior . to 30-3-1948, the date on which the Indian Finance Act of 1948 also came into force, because the Income-tax Act applied to the earlier years by the relevant Finance Acts was an Act without the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act as it stood at the date of the Finance Act, and as the former Act, as it then stood, already contained the amended provision, the income from the settled properties had rightly been added to the other income of the assessee. In the course of their judgment, their Lordships pointed out that, under the Indian Act. it was not the income of the assessment year but that of the previous year which was taxed and they added the following observation: "In the second place, it should be remembered that the Indian Income-tax Act, 1922, as amended from time to time, forms a Code, which has no operative effect except so far as it is rendered applicable for the recovery of tax imposed for a particular fiscal year by a Finance Act." 21. In my opinion, it is perfectly clear that the annual Finance Act has no concern with the procedural provisions of the Income-tax Act and their Lordships of the Privy Council did not say that it had. They spoke only of "tax imposed for a particular fiscal year by a Finance Act", Section 3, Income-tax Act, provides that "where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time when a tax came to be imposed on the previous year's income by the Finance Act of the next year, the Income-tax Act had come to include the particular income in the income of the assessee, the tax came necessarily to be attached to it as a part of his total income. That is also the meaning of the other passage in which it was said that the tax was chargeable at the rates fixed by the Finance Act on the total income computed in accordance with the provisions of the Income-tax Act, as it stood at the date when the Finance Act came into force. Their Lordships laid down no general proposition that the Income-tax Act could not operate at all till a Finance Act made it applicable to s, particular assessment year and that even the procedural sections required to be so applied. 21a. The two Indian decisions may be shortly disposed of. In the Allahabad case it was held that the first proviso to Section 24 (1), Income-tax Act, which provided that loss incurred in an Indian State could not be set off against income accrued in British India and which came into force on 12-4-1944, did not apply to an assessment for the year 1944-45, as the Act, as it stood on 1-4-1944, did not contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r it after the expiry. of two years from the date of the order sought to be revised, I am unable to see why, after the section had come into force, the Commissioner could not revise any order, so long as he did not go beyond the time-limit prescribed. Mr. Meyer contended that the learned Judges had applied the latter part of Section 1(2) to a case governed by the first part. I do not consider that criticism justified. They did proceed on the date, 30-3-1948 and not on the expression "all assessments subsequent to the assessments for the year ending on 31-3-1948", but they attributed to the specification of the former date with respect to Sections 3 to 12 of the amending Act an effect which, in my view, is not justified. That date may have been chosen, because, first Sections 11 and 12 of the amending Act introduced certain new provisions which affected tax relief and were intended to apply to the assessment year 1948-49 which they could not do without the assistance of the Finance Act of 1948, and secondly, because Section 34 was intended to reach out to the assessment year 1939-40, the first of the War years. 22. In my opinion, the cases cited by Mr. Mitra do not establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to all the three assessment years without presenting any problem of construction. 23. In the view I have taken, of Section 34, no question of retrospective operation, as a question of interpretation, arises in the present case. The term 'retrospective operation', as has been observed, is ambiguous, because it is applied both to the act that a particular enactment operates from before its date or so as to affect pre-existing rights and to the problem of construction which may be presented by an enactment as to whether it extends backwards or not. When an enactment extends backwards by its own clear language, it operates retrospectively, but presents no problem of construction. There can be no doubt that the Legislature is supreme and it can, if it chooses, legislate so as to alter rights with effect from a prior date, it is only when the intention of the Legislature does not lie on the surface that a question of interpretation arises and, in such a case, in deciding whether the enactment concerned is intended to operate retrospectively, certain well-known principles are followed. The present case does not belong to that type, because the effect of the manner in which Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 34 being essentially a rule of limitation, the matter requires a little more careful scrutiny. 26. But since Section 34 had a predecessor which prescribed the same limits of time for initiation of proceedings, more or less in the same circumstances, it would 'prima facie1 appear that by the new section no pre-existing rights are adversely affected. It is important to remember that the section imposes no new burden of tax and indeed creates no liability at all. Where there is an assessable income, the liability to tax has already attached to it under the charging sections of the Act; its measure has also been determined under the provisions of the relevant Finance Act, although it may not have been computed or fully computed. Section 34 only authorises an enquiry with a view to verifying whether there was an assessable income which has escaped assessment or has not been fully assessed, and it also authorises an assessment or re-assessment if the enquiry results in an affirmative finding. From one point of view, vested right claimed in such circumstances would seem to be a right not to pay the tax legally due or a right to retain one's concealments which, in the words o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the old section allowed the same time for the initiation and the completion of proceedings, the new section allows one further year for the completion. 28. But even assuming that the differences between the two sections are real, I am unable to hold that the new section invades any vested rights. I do not exclude vested rights merely on the ground that the sections concern procedure in which no vested right can be claimed, but I do so on the ground that no affection of any right is at all involved. It is true that the mere fact that the Income-tax officer initiates proceedings under Section 34 does not mean or prove that non-assessment or under-assessment has in fact occurred, but the fact that the assessee may be subjected to some undeserved harassment by a proceeding under the new section, although no income has escaped assessment or full assessment, can be no ground for saying that any right is for the first time being affected. Under the old section as well, the Income-tax officer could proceed on his own view of a possibility that income might have escaped assessment or might have been underassessed, although it was called 'discovery'; and since the time-limits for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears to me that none of the matters referred to by the learned Judge is a matter of substantive right at all. It must be remembered that the section does not make any income taxable under the Act for the first time, nor does, it enlarge the quantum of income taxable. It creates no new liability to tax, nor authorises the Revenue to bring under assessment any category of income which was formerly exempt from taxation. It is concerned only with the time and the methods of the enquiry as to whether all the income, already liable to assessment, has in fact been assessed. The learned Judge mentioned the "protection given to the assessee not to be subjected to re-assessment except only under certain conditions and within a certain time" as a substantive right. As to time, none has a vested right in a period of limitation and a change of the period' which does not altogether take away a right of action subsisting at the date of change or revive a right, then already barred under the old law, can always be made and the period applicable thereafter will be the new period, whether enlarged or abridged. Besides, the period has not in fact been. enlarged in the present case. Nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided for or leaving them to the very doubtful charge of the repealed section, operating along with S. 6(e), General Clauses Act. I find no compelling reason to adopt so fanciful a construction. 31. Mr. Mitra also raised a point of constitutional law which, I confess, I found it extremely difficult to appreciate. He contended that since India became a Dominion only on 15-8-1947 and was a Dominion when Act 48 of 1948 was enacted, it could have no concern with or interest in the pre 1947 income of any assessee, because the tax on such income belonged to the outgoing British Indian Government and with respect to it the Dominion of India could not legislate. Whether Mr. Mitra intended to say that an Act of the Dominion of India could not, as a matter of law, apply to the pre-1947 income of any Indian citizen. or whether his meaning was that since the unassessed tax of the period prior to 15-3-1947 did not belong to the Dominion of India, the Dominion must be taken to have not intended to legislate for such, tax by Act 48 of 1948, was not very clear. I invited Mr. Mitra to give the steps of his reasoning, but beyond saying that the pre-1947 revenue belonged to the British Power, though ..... X X X X Extracts X X X X X X X X Extracts X X X X
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