9911796707
TMI Blog1979 (7) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... , the return of income of the assessee was due for submission on July 21, 1961. Similarly for the assessment year 1962-63, return of income was due for submission on June 30, 1962. The assessee filed the returns on June 5, 1963, and October 15, 1965, respectively. The Income-tax Officer, for short the " ITO ", initiated penalty proceedings under s. 271 (1)(a) of " the Act " for delayed filing of the returns and levied penalties on the assessee for both the assessment years. The assessee being aggrieved by the order of assessment and levy of penalty in respect of the assessment year 1961-62, filed two appeals before the Appellate Assistant Commissioner, for short " the AAC ", against the order of assessment and levy of penalty. The AAC set aside the assessment order on November 30, 1968, with a direction to the ITO to make fresh assessment for the said assessment year 1961-62. The AAC also cancelled the original penalty order on the ground that the assessment on the basis of which penalty order had been imposed stood vacated and/or set aside by the AAC and directed that fresh penalty order might be made on the basis of fresh assessment. A fresh assessment order was made on Septembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals were registered as I.T.A. Nos. 709 (Gau) and 710 (Gau) of 1972-73. The Tribunal relied on CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) and held in both the appeals that as there had been no net tax payable after giving credits of tax paid by the assessee on the date of imposition of penalty no penalty was imposable and dismissed both the appeals preferred. Thereafter, the Direct Taxes (Amend.) Act, 1974, for short " the Amendment Act ", was enforced on August 18, 1974. Section 13 of the Amendment Act amended the provisions of ss. 271(1)(a) and 271(1)(i) with retrospective effect. Section 13 of the Amendment Act is quoted here in below : " 13. Amendment of section 271.- In section 271 of the Income-tax Act, for clause (i) of sub-section (1), the following clause shall be substituted and shall be deemed always to have been substituted, namely :- ' (i) in the cases referred to in clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the assessed tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the assessed tax. Explanation.-- In this clause ' assessed tax ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a reference and hence the matters are before this court being referred by the Tribunal under s. 256 of the Act. The concluded finding of the Tribunal is that it has the power to rectify any order under s. 254(2) of the Act at any time within four years from the date of the order if there is any mistake apparent from the record and has power to amend any order passed by it in exercise of its power under s. 254(1) of the Act when the said mistake is brought to its notice by the assessee or the ITO. The Tribunal refused to exercise the power under s. 254(2) of the Act on the score that the assessment had been completed. It is undoubtedly true that when the orders were rendered by the Tribunal they were made in accordance with the law as it then stood. However, the language of the relevant provision of the Amendment Act is clear to indicate that s. 271(1) of the Act stood substituted on and from the date of commencement of the Income-tax Act, 1961. The retrospective effect given by the Amendment Act is couched in the following language: " The following shall be substituted and shall be deemed always to have been substituted ........" (Emphasis added) Therefore, the main quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se to be plain. This naturally brings into play the principle that one ought not to give a larger retrospective power to a section, even in an Act which is to some extent intended to be retrospective ; then one can plainly see the legislative intent to the contrary. Presumption against retrospectivity can be rebutted or the general rule can be departed when it is expressly enacted that an enactment shall be retrospective ; or if by necessary implication from the language employed it can be gathered clearly that the legislature intended a particular section to have a retrospective operation. In the instant case, the use of the expressions contained in s. 13 of the " Amendment Act " stating that s. 271(1)(a) as amended shall be inserted and shall always be deemed to have been inserted in the " parent Act " inevitably leads to the conclusion that the effect of retrospective operation is that the amendment inserted in s. 271(1)(i) of the " parent Act " would, for all legal purposes, have to be deemed to have been included in the Act on and from the date of operation of the I.T. Act, 1961. In this regard there is no dispute nor can there be any dispute and this proposition has been acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... halam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. [1958] 34 ITR 143 observed as under (p. 147): " In our opinion, this argument does not really help the respondent's case because the order passed by the Income-tax Officer under section 18A(5) cannot be said to be final in the literal sense of the word. This order was and continued to be liable to be modified under section 35 of the Act. What the Income-tax Officer has purported to do in the present case is not to revise his order in the light of the retrospective amendment made by section 13 of the Amendment Act alone, but to exercise his power under section 35 of the Act ; and so the question which falls to be considered in the present appeal centres round the construction of the expression ' mistake apparent from the record ' used in section 35. That is why we think the principle of the finality of the orders or the sanctity of the existing rights cannot be effectively invoked by the respondent in the present case." In our case, we are to read in the above observations ss. 271(1)(a)(i) and 254(2) of the I.T. Act, 1961, instead of ss. 18A(5) and 35, respectively. There cannot be any dispute that the Appellate Tribunal had power of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the " parent Act ". The language used in the Amendment Act providing for retrospective operation of the relevant provision did not make any distinction between assessment completed or continuing before the commencement of the Amendment Act. However, the Amending Act did not empower the authorities to reopen the closed cases or completed assessment in any of the provisions contained in the Amendment Act itself. Therefore, any order passed, although apparently final but continued to be and was liable to be modified under the parent Act, could be reopened or rectified by virtue of the provisions of the parent Act, within the period prescribed therein and within the limitations imposed in exercise of the power of correction, rectification or modification under the provisions of the parent Act. In Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. [1958] 34 ITR 143, while dealing with a similar question, the Supreme Court observed while interpreting the provisions of the Indian I.T. (Amend.) Act, 1953, as under : " In other words, a distinction can be drawn between these two provisions of the Amendment Act and the rest in respect of the power which the Income-tax Officer ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut such a result is necessarily involved in the legal fiction about the retrospective operation of the Amendment Act. If, as a result of the said fiction, we must read the subsequently inserted proviso as forming part of section 18A(5) of the principal Act as from April 1, 1952, the conclusion is inescapable that the order in question is inconsistent with the provisions of the said proviso and must be deemed to suffer from a mistake apparent from the record. " Therefore, in the instant case, the orders which had been rendered by the Tribunal were good and valid when they were so rendered. But the orders so rendered are patently invalid and wrong by virtue of the retrospective operation of the Amendment Act. Therefore, when the application for rectification was made within the period of limitation prescribed under s. 254(2) of the Act as a result of the retrospective operation of the Amendment Act, the conclusion is now inescapable that the order in question is inconsistent with the provision of the Amended Act and " must be deemed to suffer from a mistake apparent from the record " and that is why the applications for rectification ought to have been entertained and disposed of by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enactment of the " Amendment Act ". The objection of the assessee was turned down and the assessee questioned the validity of the order of rectification made by the AAC before the High Court. It was urged on behalf of the petitioner that the authority had no power to rectify the order in view of the fact that there was no error apparent on the face of the record because, (A) the original assessment when made was in accordance with law ; and (B) the question as to whether the Amending Act applied to assessment which had already been completed was, in any event, a debatable question. The High Court rejected the contention ' (A) ' relying on Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. [1958] 34 ITR 143 (SC). While considering the contention ' (B) ', the High Court has observed that in Venkatachalam, ITO, the Supreme Court had not had the occasion to consider the further question as to whether the power of rectification could have been invoked had it come to the conclusion that it was an arguable question ; the said decision of the Supreme Court does lay down that a deeming fiction couched in words similar to the words used in the case should be construed as intending to aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmittedly completed before and the firms April 1, 1952. He was the partner of M/s. D and M/s. P were registered under the Act. The partner submitted his returns of income for two years 1946-47 and 1947-48 and his assessment was completed on February 20, 1950. Assessment of M/s. D was completed for the aforesaid years on October 31, 1950. Assessment of M/s. P was completed on June 30, 1951. On May 4, 1953, notices were served on the partner to show cause why his assessment for the years 1946-47 and 1947-48 should not be rectified under s. 35 of the Act. The assessee wrote to the ITO as under : " This is to inform you that I had no objection in completing the assessment of the previous year in accordance with law. " On March 27, 1954, the ITO revised the assessment of the assessee in respect of the two years after taking into account the share of losses as computed in the assessment of the two firms. The assessee died on April 17, 1954, and the respondent, Habibullah, applied to the CIT, Madras, for revision of the order but the Commissioner held that s. 35 of the Act had been properly invoked in rectifications of the assessments. The High Court of Madras quashed the order of the ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment or correction thereof as such a mistake. It was held by the Supreme Court as under [1962] 44 ITR 809, 813 : " If the inclusion of the share or the correction of the assessment were an error apparent from the record and falling under clause (1) of section 35, the enactment of clause (5) was plainly unnecessary. When the legislature has deliberately enacted a fiction of the nature set out in clause (5), we are unable to agree with the contention raised by counsel for the revenue that the enactment of the fiction was ex abundanti cautela. Rectification of the nature contemplated by clause (5) could not have been effected under clause (1), and to remove the lacuna the legislature declared that what was not a mistake should for the purpose of rectification of assessment be regarded as a mistake apparent from the record and provided a terminus for the computation of the period of four years. " The real question that fell for their Lordships' consideration was " whether relying upon clause (5) of section 35 an Income-tax Officer may rectify the assessment of a firm or person who is a partner of a firm when the assessment of the firm is completed before the 1st of April, 1952 ". (Em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and it made no such provision in cl. (5), therefore, it would be reasonable to infer that the legislature did not intend to grant to the revenue authorities a power to rectify assessments falling within cl. (5) where the firm's assessment was completed before April 1, 1952. It was held that cl. (5) of s. 35 which was enacted by the Amendment Act was not declaratory of pre-existing law and it clearly affected the vested right which had accrued to the assessee and must be deemed to have come into force from April 1, 1952, and the clause had no retrospective effect than was expressly granted to it. The power to rectify assessment of a partner consequent upon the assessment of the firm could, therefore, be exercised only in case of assessment of the firm made on or after April 1, 1952. The ITO had no jurisdiction under s. 35(5) of the Act to rectify the assessment of a partner of a firm consequent upon the assessment or reassessment of the firm disclosing an error made before April 1, 1952. In the instant case, s. 271(1)(a)(i) was amended with retrospective effect as if it had been in the statute book from the inception of the Act of 1961 and no terminus quo other than the above is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case [1962] 44 ITR 809 (SC) stands on a different footing altogether and has nothing to do with the principles of law enunciated by the Supreme Court in Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. [1958] 34 ITR 143 (SC). In none of the cases referred to in J. M. Shah [1974] 94 ITR 519 (Bom) the principles of law enunciated in Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. [1958] 34 ITR 143 (SC) was dissented from. In Habibullah's case [1962] 44 ITR 809 (SC) and the other cases dealing with s. 35(5) the question was as to the extent of the retrospectivity of cl. (5) of s. 35 when the authority exercised their power on the basis of the newly introduced s. 35(5), namely, as to whether it had power to reopen or rectify closed assessment prior to April 1, 1952. But the ratio decidendi of Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. [1958] 34 ITR 143 (SC) is that the power of rectification exercised under the old s. 35 can be made with impunity in the light of retrospective amendment in another section. It was held in Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. that the principle of finality of the orders or the sanctity of the existing rights as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion in J. M. Shah's case [1974] 94 ITR 519, 533 (Bom) that " there is, therefore, a clear divergence of views on a point which arose in these cases " (Habibullah's case [1962] 44 ITR 809 (SC) and Venkatachalam, ITO v. Bombay Dyeing and Mfg. Co. Ltd. [1958] 34 ITR 143 (SC)), is difficult to accept. In the result, we are constrained to hold that the Tribunal had jurisdiction to exercise its power of rectification under s. 254(2) of the I.T. Act, 1961, read with the newly added s. 271(1)(a)(i) of the Act. As such the answer to the question referred is that the Tribunal was not legally correct in refusing to rectify its order dated May 30, 1974, in I.T.A. No. 709 (Gau) of 1972-73 and the order dated May 31, 1974, in I.T.A. No. 710 (Gau) of 1972-73, having regard to the provisions of s. 13 of the Direct Taxes (Amend.) Act, 1974, on the ground that it was a debatable point and so no rectification order could be passed under s. 254(2) of the I.T. Act, 1961, relating to the assessment in question. Before parting we put on record the reason for delay in pronouncing the judgment. The matter was last heard on March 16, 1979. We had no time to deliver judgment forthwith ; one of us ..... X X X X Extracts X X X X X X X X Extracts X X X X
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