9911796707
TMI Blog1966 (2) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... . Nookaiah Setty, one of the minor sons of the petitioner, is a partner in the oil mill. The other minor son, Ramanaji Rao, is a partner in the commission kottu. There are also other major partners in each of these firms. The firms have been duly registered under the provisions of the Income-tax Act. The individual assessment of the petitioner for the year 1951-52 was completed on October 31, 1951; for the year 1952-53, on April 21, 1954; for the year' 1953-54, on January 23, 1954 ; for the year 1954-55, on February 10, 1956 ; and for the year 1955-56, on March 20, 1957. On the assessment of the oil mill in each of these five years, the share income of the petitioner was rectified on March 31, 1955, April 30, 1957, March 2, 1959, March 2, 1959, and April 18, 1960, respectively. Against each of the assessment orders, the oil mill preferred an appeal. On appeal, the Tribunal reduced the assessment made on the firm for the first four years, viz., 1951-52 to 1954-55. Regarding the year 1955-56, the Appellate Assistant Commissioner reduced the assessment on October 20, 1962. But, it appears that the matter did not go up to the Tribunal and the Appellate Assistant Commissioner's order h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The income of the minor sons of the petitioner was also liable to be included as per the provisions of section 16(3)(a)(ii) of the 1922 Act, and so, notices were issued under sections 154 and 155 for the aforesaid assessment years and the assessee was given a reasonable opportunity of being heard. After consideration of the objections raised by the assessee, the orders were passed. It was also stated that since the rectification under sections 154 and 155 of the Income-tax Act, 1961, for the assessment years 1951-52 and 1955-56 had not yet been completed, there was no question of any limitation. It was further stated that under section 16(3)(a)(ii) the income of the minor had to be included and since it had been overlooked, that mistake was being rectified as it amounted to an error apparent from the record; and hence, there was no question of the notices being contrary to law or invalid. On these averments, two questions were raised before our learned brother: " (1) Whether the old Income-tax Act of 1922 or the new Income-tax Act of 1961 was applicable to the proceedings now impugned ? (2) Whether the Income-tax Officer has power and jurisdiction under the provisions of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new duty or attaches a new disability in respect to transactions or considerations already past ... In Lauri v. Renad, Lindley L.J. said : ' It is a fundamental rule of English law that no statute shall be construed so as to have a retrospective operation, unless its language is such as plainly to require such a construction. And the same rule involves another and subordinate rule, to the effect that a statute is not to be construed so as to have a greater retrospective operation than its language renders necessary. ' " At page 360, the learned author states the rule of construction as follows : " And perhaps no rule of construction is more firmly established than this---that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation otherwise than as regards matter of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only." Maxwell on the Interpretation of Statutes (tenth edition) says much to the same effect at page 213 thus : " It is a funda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retrospectivity should be applied. Bearing the aforesaid principles in mind, let us now refer to the relevant provisions of the Income-tax Act of 1961. Section 297(1), which refers to the old Act being repealed, enjoins : " The Indian Income-tax Act, 1922 (XI of 1922), is hereby repealed. Clause (2) reads : " Notwithstanding the repeal of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as the repealed Act),--- (a) where a return of income has been filed before the commencement of this Act by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed ; (b) where a return of income is filed after the commencement of this Act otherwise than in pursuance of a notice under section 34 of the repealed Act by any person for the assessment year ending on the 31st day of March, 1962, or any earlier year, the assessment of that person for that year shall be made in accordance with the procedure specified in this Act; (c) any proceeding pending on the commencement of this Act before any income-tax authority, the Appellate Tribunal or any court, by way of appeal, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion destroy the rights and liabilities acquired or incurred under the old Act. Viewed in this manner, we do not find anything in the new Act which destroys the rights and privileges acquired under the old Act or the liabilities incurred thereunder. Let us consider this in another manner. In section 297(2)(a), the expression " proceedings for the assessment " occurs. If the proceedings launched by the Income-tax Officer in the instant cases are construed as proceedings for assessment, they would in express terms be saved by section 297(2)(a) of the new Act. The term " assessment " includes in our opinion not only the computation of income but also the determination of the sum payable as tax. What the Income-tax Officer is doing now, in essence, amounts to this : he is trying to compute the petitioner's income at a higher amount and to fix his tax liability in a larger sum. In seeking to include the income of his minor sons in the total income of the petitioner, proceedings are in effect taken under the provisions of section 16(3)(a)(ii) of the old Act. From the opening words in section 16(3), " in computing the total income of any individual for the purpose of assessment, there sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view to the inclusion of the share in the assessment or the correction thereof, as the case may be ; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the date of the final order passed in the case of the association or body, as the case may be ......." A plain reading of the above provisions would show that it has only prospective operation. Proceedings for rectification of the individual assessment of a partner on the basis of the assessment or the reassessment of the firm affect vested rights and are not merely matters of procedure. The proceedings for rectification of the completed assessment of the petitioner are said to have been taken because of certain appellate orders passed by the Income-tax Appellate Tribunal and the Income-tax Appellate Assistant Commissioner. These appellate orders were passed before the coming into force of the new Act of 1961. Admittedly, what the Income-tax Officer sought to do in the present cases was by virtue of those appellate orders. It is, therefore, only reasonable to conclude that the statutory provisions which were in force ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l assessment but from the record of the assessment of a firm, which, for the purposes of the Incometax Act, is another entity, no action can be taken under section 35(1). Further, the rectification under section 35(1) of the mistake apparent from the record can only be done within four years of the assessment order and, after the expiry of the period of four years, such a mistake cannot be corrected under section 35(1). In other words, 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 order sought to be rectified. The mistake which may be rectified need not be in the order itself. It may be in any part of the record or proceedings of assessment of the assessee. Sri K. Ramachandra Rao, the learned counsel for the respondent, has contended that the rectification now sought cannot be deemed to be a mistake apparent from the record and cannot be rectified under section 35(1). In support of his argument, he relied on the following cases : Calcutta Discount Co. Ltd. v. Income-tax Officer, Kalawati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal order passed in respect of the firm ; whereas under section 35(1), it is four years from the date of the order of assessment of the individual partner. It usually happens that the assessment of a firm is made only years after the assessment in respect of the individual partner is made. If after a lapse of some years after the individual assessment order, a rectification arising under section 35(5) is to be made and if that opportunity can be availed of by the Income-tax Officer for rectifying other mistakes coming exclusively under section 35(1), and not at all under section 35(5), the period of limitation prescribed under section 35(1) will become wholly nugatory. Further, if the inclusion of the share and correction of the assessment were an error apparent from the record, falling under sub-section (1) of section 35, the enactment of sub-section (5) was unnecessary. This provision, as stated earlier, was incorporated by an amendment obviously made for the purpose of enabling the result of a subsequent assessment or modification in the assessment of the firm to be given effect in respect of the completed individual assessment of a partner. It could not have, therefore, been i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to section 35(5). This cannot be a justifiable method of putting to use the provisions of section 35(5). We are, therefore, clear that section 33(5) does not apply to the facts of the instant case and the department cannot be permitted to correct the mistake under this provision. It is next urged by Sri C. Kondaiah, the learned counsel for the department, that as the rectification sought to be made is just and proper, inasmuch as the share-income of the minor sons in the partnership firm should have been included in the petitioner as per the provisions of the Act, the learned judge ought to have refused to exercise his discretion under article 226 of the Constitution of India. Sri K. Ramachandra Rao, the learned counsel for the respondent, while accepting that under section 16(3)(a)(ii) the income of the minor sons has to be included in computing the total income of an individual for purposes of assessment, contended that that could have been only done if there was a mistake apparent on the face of the record and that too within four years from the date of the assessment order and, the same not having been done, the department cannot now try to correct that mistake under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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