TMI Blog1962 (11) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... nt: R. J. Kolah, J. B. Dadachanji, O. C. Mathur and Ravinder Narain,. For the Respondent: Gopal Singh and R. N. Sachthey JUDGMENT S. K. DAS J. - This appeal on a certificate of fitness granted by the High Court of Bombay raises a question of interpretation of subsection (10) of section 35 of the Indian Income tax Act, 1922. This sub-section is one of a group of sub-sections substituted or inserted in the said section by section 19 of the Finance Act, 1956 (18 of 1956). By section 28 of the said Finance Act, sub-section (10) of section 35 of the Income tax Act, 1922, came into force on April 1, 1956. The short question before us is, whether on its true construction, subsection (10) of section 35 applies in a case where a company declares dividends by availing itself wholly or partly of the amount on which a rebate of income tax was earlier allowed to it under clause (i) of the proviso to Paragraph B of Part 1 of the relevant Schedules to the Finance Acts, when such dividends were declared prior to the coming into force of the sub-section, that is prior to April 1, 1956. The facts which have given rise to the appeal are these. The Ahmedabad Manufacturing and Calico Print ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and has preferred the present appeal in pursuance of that certificate. We may now read some of the provisions of section 35 in so far as they are relevant for our purpose : 35. (1) The Commissioner or Appellate Assistant Commissioner may, at any time within four years from the date of any order passed by him in appeal or, in the case of the Commissioner, in revision under section 33A and the Income tax Officer may, at any time within four years from the date of any assessment order or refund order passed by him on his own motion rectify any mistake apparent from the record of the appeal, revision, assessment or refund as the case may be, and shall within the like period rectify any such mistake which has been brought to his notice by an assessee........ (5) Where in respect of any compelled assessment of a partner in a firm it is found on the assessment or reassessment of the firm or on any reduction or enhancement made in the income of the firm under section 31, section 33, section 33A, section 33B, section 66 or section 66A that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or if included, is not correct, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation is a rectification of a mistake apparent from the record within the meaning of this section and the provisions of subsection (1) shall apply accordingly, the period of four years specified therein being reckoned from the end of the financial year in which the amount on which the rebate of income tax was allowed as aforesaid was availed of by the company wholly or partly for declaring dividends." Speaking generally, section 35 deals with rectification of mistakes in circumstances detailed in the various sub-section thereof and provides for orders consequent on such rectification. Sub-section (1) empowers the income-tax authorities to rectify mistakes apparent from the record in respect of certain orders passed by them. It provides that the Income tax Officer concerned may at any time within four years from the date of any assessment order passed by him on his own motion rectify any mistake apparent from the record of the assessment. The power of rectification may be exercised subject to two conditions : (1) that there is a mistake apparent from the record of the assessment, and (2) that the order of rectification is made within four years from the date of the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (10) affects a vested right, namely, the right to a rebate of income tax on a part of the total income of the company under clause (i) of the proviso to Paragraph B of Part 1 of the relevant Schedules to the Finance Acts of 1948 to 1955, and the further right to declare dividends out of the undistributed profits of the previous year. Under the well-settled rules of statutory construction no statute which impairs an existing right or obligation except as regards a matter of procedure, shall have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. Put differently, a statute is not be construed to have a greater retrospective operation than its language renders necessary; and it is submitted that "the general rule is that all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective; and retrospective effect is not to be given to them unless by express words or necessary implication, it appears that this was the intention of the legislature" and "it is a corollary of this general presumption against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section, sub-section (5) and sub-section (10) of section 35. In both cases a rectification or correction is made by reason of a subsection event; in sub-section (5) the subsequent event is the assessment of the firm which discloses the inaccuracy in the earlier assessment of a partner; in sub-section (10) the subsequent event is the declaration of dividend out of the amount on which a rebate was earlier granted. It is pointed out that in their true scope and effect the two sub-section stand on the same footing. Sub-section (10) further makes it clear that by a legal fiction that which was correct at the time when it was made is rendered incorrect after the coming into force of the sub-section. The sub-section states clearly : "...shall, by reason of the rebate of incometax allowed to the company... be deemed to have been made the subject of incorrect relief under this Act, and the Income-tax officer shall recompute the tax payable by the company by reducing the rebate originally allowed ..." This language, it is argued, is clearly prospective and does not justify the carrying of the legal fiction to a period earlier than April 1, 1956. As against these arguments, learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessments for the years 1948 to 1955, it merely refers to the period during which the rebate provisions were in force. It is not disputed before us that the rebate provisions came into force from the Finance Act of 1948 and ended with the Finance Act of 1955. The first part, therefore, is merely a reference to the period during which the rebate provisions were in force. It is indeed true that in the second part of the sub-section the expression used is "declaring dividends in any year" and this has to be read in conjunction with the word "subsequently" which can only mean subsequent to the allowance of the rebate. But in the very same part it is further stated that the declaration of dividend in any year shall, by reason of the rebate, be deemed to have made the amount on which the rebate was granted, the subject of incorrect relief etc. This language which creates the legal fiction is clearly prospective and shows that what was correct at the time when the rebate was granted is rendered incorrect on the happening of the crucial event after the coming into force of the sub-section, and by the express terms of section 28 of the Finance Act, 1956, the sub-section comes into forc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1952-53, the appellant, a company, had been granted under the provisions of the Finance Act, 1952, a rebate on a portion of its profits of the previous year, that is, 1951, which it had not distributed as dividends to its shareholders. In the next assessment year 1953-54, the appellant used a part of the aforesaid undistributed profits for declaring dividends. As the law then stood, nothing could be done by the revenue authorities to withdraw the rebate earlier granted on the ground of the profits being utilised in declaring dividends in a later year. From April 1, 1956, however, there was a change in the law as sub-section (10) of section 35 of the Income-tax Act, 1922, was brought into force then. By an order made on March 27, 1958, under that sub-section, the terms of which I will set out presently, the aforesaid rebate was withdrawn and the appellant was called upon to refund it. The appellant then applied to the High Court at Bombay for a writ to quash the order of March 27, 1958, on the ground that sub-section (10) was not applicable to the facts of this case for reasons which I will later state. That application was dismissed. This appeal is against this decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear subsequently to the year in which the rebate was granted. They would, therefore, clearly include a year before the sub-section came into force. But it is said that these words should in view of the rule be read as not including a year before the sub-section came into force as they also include years subsequent to the coming into force of the sub-section and are therefore ambiguous. I am unable to accept this contention. I find no ambiguity. If the intention was that the sub-section would apply only when the amount was availed of for declaration of dividends after it was enacted then the words "subsequently" and "in any year" were wholly unnecessary. Without these words the sub-section would have read, "and the amount is availed of for declaring dividends". There would then be no doubt that it was intended to operate only prospectively. But the legislature used some more words. It must have done so with some purpose. What that purpose was if it was not to give the subsection a retrospective operation, I fail to see. I am unable to read the words "subsequently" and "in any year" as otiose and as indicating no different intention. Therefore, it seems to me that the language of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not happened earlier, there is no reason to think that the legislature anticipated the evil happening in future and passed the law to stop it. In view of the large number of years that had passed between the time when the allowance of rebate commenced and the time when the sub-section was brought into force, it can be imagined that a very large number of case of distribution of profits on which rebate had been allowed, had already taken place. I find it difficult to think that many cases remained after April 1, 1956, where a company which intended to utilise the amounts on which rebate had been granted in the declaration of dividends, had not already done so. There is no dispute that by sub-section(10) the legislature intended to penalise a case where subsequent to its enactment, the amount on which rebate had been granted was utilised in declaration of dividends. Now is there any reason to think that the legislature did not want to impose the penalty also on those who had earlier utilised the amount in declaration of dividends ? There was no special merit in these latter cases. And I also think that they formed the majority of the cases. The grant of rebate having been stopped a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of cotton piece-goods and chemicals. The year of account of the assessee company is the calendar year. In the assessment year 1952-53, corresponding to the calendar year 1951, the appellants were assessed on January 31, 1953, on a total income of Rs. 1,02,79,808. The assessee company was allowed a rebate of one anna per rupee amounting to Rs. 2,28, 924 on the undistributed profits of Rs. 26,62,776 under the first proviso to Paragraph B of Part 1 of the First Schedule to the Finance Act, 1952. For the assessment year 1953-54 (account year calendar year 1952) the books of the assessee company showed a profit of Rs. 45,67,966. That profit became a loss of Rs. 5,98,353 after deductions like depreciation etc., were allowed. In spite of there being a loss, the assessee company declared on April 20, 1953, a dividend of Rs. 19,32,000 for the year of account 1952. The Income-tax Officer, by an order dated March 18, 1958, called upon the assessee company to show cause why action under section 35(10) of the Income-tax Act should not be taken to recall a proportionate part of the rebate because in his opinion the entire dividend of Rs. 19,32,000 came out of the undistributed profits of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment or reassessment of the firm or on any reduction or enhancement made in the income of the firm under section 31, section 33, section 33A, section 33B, section 66 or section 66A that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section and the provisions of sub-section (1) shall apply thereto accordingly, the period of four years referred to in that sub-section being computed from the date of the final order passed in the case of the firm." It must be noticed that under this amendment time-limit started from the date of the final order passed in the case of the firm though the rectification is to be made in the assessment of the partners of the firm. By section 19 of the Finance Act, 1956, sub-section (10) (among others) was added as from April 1, 1956. That sub-section reads as follows : "(10) Where, in any of the assessment for the years beginning on the 1st day of April ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aration took place earlier. Reliance was placed upon the decision of this court in Income-tax Officer v. Habibullah and reference was also made to another decision following Habibullah's case. Second Additional Income-tax Officer v. Atmala Nagaraj. Our learned brother Das J. following Habibullah's case has held that the contention of the assessee company is well-founded and has expressed the opinion that Atmala Nagaraj's case may need reconsideration. He has, therefore,ordered the reversal of the judgment and order of the High Court. In our judgment, and we say it with profound respect, this appeal must be dismissed. We are also of the opinion that both the above cases (which are of the same Divisional Bench) may have to be reconsidered hereafter. Atmala Nagaraj's 1962] 46 I.T.R. 609 case followed Habibullah's 1962] Supp. 2 S.C.R. 716 case. The difference in the facts of the two cases was only in one respect and that was not sufficient to take Atmala Nagaraj's (supra) case out of the ratio of the earlier decision. We shall deal with these two cases later. The Income-tax Act imposes a charge of tax for a year at a time and that year is the year of assessment. The charge is in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment of income for one reason or another (section 34). Both these sections which enable reopening of back assessments provide their own periods of time for action but all these periods of time, whether for the first assessment or for rectification, or for reassessment, merely create a bar when that time passed against the machinery set up by the Income-tax Act for the assessment and levy of the tax. They do not create an exemption in favour of the assessee or grant an absolution on the expiry of the period. The liability is not enforceable but the tax may again become exigible if the bar is removed and the taxpayer is brought within the jurisdiction of the said machinery by reasons of a new power. This is, of course, subject to the condition that the law must say that such is the jurisdiction, either expressly or by clear implication. If the language of the law has that clear meaning, it must be given that effect and where the language expressly so declares or clearly implies it, the retrospective operation is not controlled by the commencement clause. The amendment, with which we are concerned, was made by the Finance Act, 1956 (18 of 1956). By section 2, it dealt with the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section and the provisions of sub-section (1) shall apply accordingly the period of four years...being reckoned from the end of the financial year in which the amount on which rebate of income tax was allowed....was availed of...for declaring dividends." The purport of this new sub-section was the recall of rebate which had been allowed in any of the assessments for the years April 1, 1948, to March 31, 1956, under certain circumstances. At the very start, the sub-section takes one to assessment years to which section 28 which prescribed the commencement as April 1,1956, did not take one to. (1) (1886) 31 Ch. D. 402, 409. We do not accept the argument of the learned counsel for the assessee company that the mention of the years is merely a repetition of a historical facts for ready reference. The words "in any of the assessments for the years etc." show in respect of which assessments rectification would be possible. The years are mentioned individually by using the word any. The law speaking in 1956 was thus speaking of all the assessment years individually going back to 1st April, 1948. The language was clearly one of retrospectivity and the suggestion that there is no int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, the utmost reach of the Income tax Officer would be the end of the assessment year 1952. Any declaration of dividend after 1st day of April, 1952, out of accumulated profits of any of the years in which rebate was earned would be within the time for the recall of the rebate. But a declaration prior to April 1, 1952, would be beyond the power of the Income-tax Officer to recall. This meaning is the only meaning which the plain words of the section can bear. Any other meaning might make sub-section (10) unworkable because no company, with the knowledge that rebate would be recalled, would like to declare dividends after April 1, 1956, out of amounts on which rebate was earned. If the other meaning was attributed, subsection (10) might well be a dead letter. The sub-section was obviously the result of noting how rebates were earned and later were being utilized to fill the pockets of the shareholders. The amendment met this situation and did it in very clear terms. It remains to consider the decisions of this court in Habibullah's case (supra) and Atmala Nagaraj's [1962] 46 I.T.R. 609 case. In those two cases this court was called upon to interpet sub-section (5) quoted above wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en assessment which had become final before the commencement of the new sub-section, contrasting its language with that of sub-section (6) which was simultaneously introduced. In Habibullah's case the dates were : Partners assessment for1946-47 on 22-2-1950 do do. 1947-48 on do Registered firms assessment for1946-47 on 31-10-1950 do do. 1947-48 on 30-6-1951 Sub-section (5) to section 35 introduced from1-4-1952 Order under section 35(5) on 27-3-1954 If sub-section (5) could be used in this case it is plain that the four years period had not passed between October 31, 1950 (which was the earlier assessment) and March, 27, 1954, when the rectification was made. No doubt, the two assessments of the firm were also before April 1, 1952, but the sub-section has nowhere said that the power was only to be exercised if the assessment of the firm was after that date. Such a meaning is also difficult to imply. Under a fiction created after April 1, 1952, the assessment of the partners disclosed a mistake and if the fiction and the rest of the sub-section were to be given their full and logical effect th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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