INCOME - TAX OFFICER, TUTICORIN versus T. S. DEVINATH NADAR & ORS.

INCOME-TAX OFFICER, TUTICORIN

T. S. DEVINATH NADAR & ORS.

October 25, 1967

(K. N. WANCHOO, C.J., R. S. BACHAWAT, V. RAMASWAMI, G. K. MITTER AND K. S. HEGDE, JJ.]

Indian Income-tax Act, 1922 as amended by Act 25 of 1953, s. 35(5) · -Rectifictition of partner's assessment consequent on reassessment of firm-Section permitting such r.ctification in re,.pect of "completed assessment" of partners-Section whether applies to partner's assessmenrs finalised before 1st April 1952. The respondent and his four brothers were partners in firm carrying · on. business in gunnies. The assessment of the firm for the year 194344 was compleied on January 22, 1946 and the share income of each partner was also determined. The as.•essment of the respondent as an individual on the basis of his share so determined was completed on January 24, 1946. Subsequently the assessment of the firm was reopened by notice under s. 34 of the Indian Income-tax Act, 1922 issued on September 11. 1952 and re-assessment by including some additional income was made in May 1959. In July 1959 notice under s. 35(5) was served on the respondent for consequential rectification of his assessment as an indivi-dual. The rectification was ultimately ordered to be made in August 1959. The respondent filed writ petition )n the High Co.urt for quash-ing· the order. Relying on the decision of this Court in Second Addi. Income-tax Officer v. Atmala Nagaraj the High Court quashed the im-pugned order. The Revenue appealed to this Court: The question that fell for consideration was whether s. 35(5) which was introduced by the Income-tali Amendment Act, 1953 could be used to rectify assessments made before ht Aoril 1952. the date from which the said amendment came into force. The respondent urged that since the amendment had be~n brought into force from an anterior date no greater retrospectivity could be given to it.

HELD : (Per Wanchoo CJ., Bachawat, Ramaswami and Mitter. JJ.). The aim of the legislation was to bring into line the assessment of the individual partner with that of the firm. It does not stand to reason that if the assessment of the firm is completed Jong after that of the individual by reason of proceeding;; under s. 34 or otherwise the discrepancy in the income of the partner as shown by the assessment of the firm and as an individual ·should continue or be left untouched. and the obvious and logical com-,;e should be to rectify the assessment of the individual on the basis of the final assessment of the firm. [39B] -

On plain reading of s. 35(5) it appears that the legislature intended that the finding as to the non-inclusion of the proper share of the partner in the profit or loss of the firrri in the assessment of the partner should excite the power of rectification. The power is to be exercised whenever "it is found on the assessment or re-assessment of the firm or on any reduction or enhancement made in the income of the firm!' The subject matter of rectification is the completed assessment of partner in the :firm. This is brought out by the use of the words "when in rcsoect of any completed assessment of a· partner in firm." · "Fhere is nothing in the section to show that such "completed assessment" must take place afters. 35(5) was brought on the statute book. What must take place to give rise to the power of rectification is th~ finding on t~e assessment or

r~~. or the firm. The finding alone must be made after the lll!Ctior\ came into force. The finding IS to be given effect to or maile operative on the 'completed a~'lessment' of partner. As the mischief sought to be rectified was the discrepancy hetween the income of the part-ner auesscd as lln individual and his income as computed on the assess-ment of the firm, the legislature must be held to have made the remedy applicable whenever the mischief was discovered. There would have been nothing unjull in making the power of rectification exercisable at any time alter lhc discovery of the discrepancy but !he legislalure in its wisdom did not think that the power should be used except within limit-ed period of four years from the date of the final order in the ca;e of the firm. 1390-HJ .. Second Addi. lncome[[0]]1ax 0/Tkn v. Atma/4 Nagaraj 46 I.T.R. 609,

.. Second Addi. lncome[[0]]1ax 0/Tkn v. Atma/4 Nagaraj 46 I.T.R.

.. reversed.

Km1umar/rrpuc// Ldhhmlnaraynna Chmy v, First Additional lncomt-tux Officer, Ne/lore, 29 I.T.R. 419, lncoltl4-tcrx Officer, Madras v. S. K. · Habihul/nli, Madras, [1962] Supp. 2 S.C.R. 716, Pardo v. Bingham, ~.R. 4 Chancery Appeals 735 and Ahmedahad Manufacturing and CaJJco Pr/11tillg Co. Ltd. v. S. C. Melita, [1963] Supp. 2 S.C.R. 92, referred IQ, Per Hegde, J (di.rsenting). The as:;cssments of the respondents had beco:ne final in the year 1946 and under the law as it stood prior to the enactment of s. 35 ( 5) those assessments could. not have been interfered with. Section 35(5) neither expressly nor by necessary implication em-D pawers the Income-tax Officer to reopen assessments which had become final. If the section empowers the reopening of all final assessments of the partners of firm. lherc \\·as no need to give that provision partial retros-peclivity. [51H: 52A] The legislature used the expression "completed assessment" in s. 35(5) to distinguish that class of assessment from assessments which arc made final under the Act. By using that expression the legislature intended that the assessment of partner should not be considered as final assess-E ment till the assessment of !he firm becomes final. Jn other words the partner.;' assessment "'·oukl continue to be tentative till the firm's assess-ment becomes final. If that be lhc true interpretation of !lie expression "completed assessment .. then the expression can only apply to assess-ments of partners made on or after April I, 1952. The respondents' assessments could not be considered as .. completed assc.;sment.!i'' within the me-•ninJ of that word ins. 35(5). [52F-H] The decision of this Court in Ata1nla Nagarafs case is correct. Even .ao;suming that's. 35(5) can receive different interpretation, this Court would not be justified in overruling its previous decision except under compclJing circumstances; otherwise confidence of tbe public i"n the soundn~s of the dedsion of this Court is bound to he shaken. [53C-E] Bengal lnw11111ity Co. Ltd. v. State of Biliar & Ors., [1955) 2 S.C.R. 603, relieJ on. C..ise Jaw referred to. CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2154 to 2158 of 1966.

· Appeals by special leave from the judgment and order dated March 27, 1963 of the Madras High Court in Writ Petitions Nos. 1229 to 1233 of 1961.

S. K. iyar and R. N. Sachthey, for the appellant (jn all the

.appeals).

T. A. Ramachandmn, for the respondents (in all the appeals).

The Judgment of WANCHOO, C.J., B_ACHAWAT, RAMA~WAMI

and MITTER, JJ. was delivered by MITTER, J. HEGDE, J. delivered dissenting Opinion.

Mitter, J. This group of five appeals by special leave arises out of common order made under Art. 226 of the Constitution of the High Court of Judicature at Madras. The, ~\ppcals involve ti;e .interpretation of s. 35 ( 5) of the Income-tax Act, 1922:

This group of five appeals by special leave arises

The facts in Civil Appe'al No. 2154 of 1966 relevant tor the

disposal of the appeal, taken by way of sample, are as follows. 'l he respcndent along with his four brothers were partners ol registered firm carrying on business in gunnies. Th~ assess-c ment of the firm for the year 1943-44 was completed on January 22, 1946 and the share income of each partner was dct~ralincd at Rs. 8,265 /-. The assessment of !he respondent as individual was completed on January 24, 1946 wherein was included his income from the partnership just noted. Subsequently, the assessment of the firm was re-opened by proceedings under s. 34(1) (a.) of the Act and sum of Rs. 90,000/- was added to the income of the firm liable to be brought to tax. The notice under s. 34 was issued on' September 11, 1952 and th.: re-assessment of the firm took place on May 30, 1959. On July 24. 1959 notice under s. 35(5) of the Act was serve'd on the res-pgndent for rectification of his assessment as an individual. The rectification was ultimately ordered to be mad-3 on August 31, J 959. The respondent applied to the High Court for quashing the said order. ,

When the matter came to be heard by the High Court of Madras, there were already three reported decisions of this Court bearing on the interpretation of s. 35 ( 5) of the Act. In the faq of these decisions, doubt had -been cast as to the eorrectness of the two earlier decisions but the High Court felt that the deci-;ion in Second Addi. Income-h•x Officer v. tmala Nagaraj(1) being the second decision cif this Court in point of time. was fully applicable to the cases before it and in that view of the matter the order of rectification was quashed. Hence these :ippe~ls.,

Before taking note of the earlier deci>ion_; of this Court, it would be appropriate to consider the relevant provisions of the lncome-tax Act and interpret them as if the matter were res integra. If the result leads to conflict of decisions, we will have to ex"-mine the question a:; to whether the view taken in an earlier case should be adhered to. It is only when this Court finds itself un -H abJe to accept the earlier view that it would be justified in decidin,c these appeals in a' different way .

(I) 46 LTR, 6:;9.

The two sub-section~ of s. 35 which call for interpretation are

transcribed as follows :

"35. Rectification of mistake.--{!) The Commis-

sioner or Appel1ate 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 fo,ur years from the date of any assessment order or refund order passed by him on his own morion rectify any mistake apparent from the re-cord of the appc ,1, 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 assessce :

Provided that no such rectification shall be made, having the effect of enhancing an assessment or ~educ­ing refund unless the Commissioner, the Appellate Assistant Commissioner or the Income-tax Officer, as the case m<1y be, has given notice to the assessee of his intention so to do and has allowed him reasonable opportunity of being heard :

Provided further that no such rectification shall made of any mistake in any order passed more than one year before the commencement of the Indian Income-tax (Amendment) Act, 1939.

(2) to (4) .

(5) Where in respect of any completed a.•se-.mcnt

of partner in firm it is found on the assessment or re-assessment of the firm or on any reduction or r.n-hanccment m~de in the income of the firm under section 31, section 33, section 33A, section 33B, section 66 or section 66A that the ~hare of the partner in the profit or loss of the firm has not been included in the assess-ment of the partner vr, 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 rectification of mistake apparent from the record with-in the meaning of this section, and the provisions of sub-section (I) shall apply thereto accordingly, the period of four years referred to in that 'uh-section being com-puted from the date of the final order passed in the case of the firm.

(6) to (10) _ "

Section 35(5) was brought on the statute book by the Incom(>.tax \Amendment) Act. 1953 (XXVof 1953). Section 1(2) of the Act provided that '

"Subject to any special provision made in this behalf in this Act, it shall be deemed to have come into force on the 1st day of April, 1952."

The Amendment Act contained provisions which show that som~ of the amendments introduced were to be effective from date; other than 1st April, 1952. Section 19 of the Act of 1953 intro-B duced sub-sections (5), (6) and (7) of s. 35 of the original Act. Under sub-s. ( 1) of s. 35 the Income-tax authorities mentioned therein were empowered to rectify mistakes apparent from the re-cord. Such power could, in the case of an Income-tax Officer, be: exercised at any time within four years from the date of any as<ess-ment order passed by him on his own motion. The section now-c cver imposes limitation in that the mistake must be in the re-cord of the case itself. As firm and the individuals composing it are separate entities for the purpose of Income-tax Act, they arc assessed separately. Under s. 23(5)(a) of the Act when the assessee is registered firm and its income has been assessed under sub-s. (!), sub-s. (3) or sub-s. (4) of that section the income-tax payable by the firm itself has to be determined and the total income of each partner of the firm including therein his share of the firm's income, profits and gains of the previous year have to be assessed and the sum payable by him on the basis of such assessment has to be determined. Jn as much however as mis-take discovered in the assessment of the firm was not mistake apparent from the record of assessment of the individual partner. s. 35(1) did not enable the Income-tax Officer to rectify the assess-ment of the individual partner because of the discovery of the mistake in the assessment of the firm. The judgment of the Andhra Pradesh High Court in Kanumar/apudi Lakslzminaraya1w Chetty v. First Additional Income-tax Officer, Ne/lore(') wherein it was decided that when the mistake discovered in the assessment of the firm was not in the record of the individual partner s. ~5( I) did not authorise the rectification of such mistakes was upheld by this Court in The Income-tax Officer, Madras v. S. K. Habiballah, Madras('). Section 35 (5) removes that difficulty. It expressly provides that where it is found on the assessment or re-assessment of the firm or on any reduction or enhancement made in the in-come of the firm under the provisions of the specified sections 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 correc-tion thereof will be deemed to be rectification of mistake ap-parent from the record within the meaning of s. 35 so as to make sub-s. (.1) of s. 35 applicable to the case of completed assess-H ment of partner in firm. Whereas under s. 35(1) rectification is only possible within four years from th!! date of any asSes.smcnt

(I) 29 T.T.R. 419.

(2) (1962] Supp. 2 S.C.R. 716,

order or refund order passed by the Income-tax Officer, the start-ing point of computation of the period of four years under s. 35(5) is the date of the final order passed in the case of the firm.

The point which has been canvassed in this case in favour of the respondent is that as the section was brought on the statute book on the I st April 1952 any mistake anterior to that date cannot be rectified. It was argued that the opening words of the ~cction rcadi,.,g

'"Where i11 respect of any completed assessment of partner in firm.,

go to show that only assessments completed after the introduction of the provision i.e. on !st April 1952 were in the contemplation of the legislature as proper subject for rectification. It was urged that according to the well known canons of construction legislation which impairs an existing right or obligation except as regards matters of procedure, is not to have retrospective operation unless such construction is clear from the terms of the Act itself. This argument was sought to be forti-fied by reference to sub-s. (2) of s. I of the Income-tax Amend-ment Act of 1953 on the ground that the legislature was bringing this provision on the statute book as from an anterior date and consequently no greater retrospcctivity should be given to it. .. The general rule"' as Halsbury puts it ir Vol. 36, (third edition), page 423 :

" is that all statutes, other than those "hich arc merely declaratory, or which relate only to matters of procedure or of evidence, arc prima facic prospective; and re~r6spective effect is not to be given to !hem unless, by express words or neces-sary implication, it appears that this was the inte~tion of the lcgisla••1re."

The law was also succinctly stated by Lord Hathcrley, L.C. in Ptudo v. Bingham(') where on the question as to whether statute operated retrospectively it was said

"In fact. we m.ist look to the general scope and purview of the statute, and at the remedy sought to be applied. and consider what was the former state of the law. and what it "'"' that the Lcgisbturc contemplated.'"

Applying the uhovc principles. we find that the aim of the legislation \Vas to brin.~ into line the asse:-,<.;111cnl of the individu;:tl purtncr with thut o[ the firm. It was well known that in m~nv cases u firm "s tinul assessment dragged 011 for years while th~ usse;smcnts of the individuals composing oL it were completed en L.R 4 Ch;!:lt:'.'.':y App ... -;!,-:-_;~.

Jon<> before the assessment of the firm itself because in the case of fi1dividuals the matter was fairly simple. It does not stand to reason that if the assessment of the firm is completed long after that of the individual by reason of proceedin5s under s. 34 or otherwise,' the discrepancy in the income of the partner as shown by the assessment of the firm and as an. individual s~ould con-ii .inue or be left untouched and the obv10us and log1cal course should be to rectify the assessment of the individual on the basis of the final assessment of the firm. Sub-s. (5) of s. 35 is only step in that direction but the legislature in its wisdom thought it best that assessments of individuals which had taken place before the final order in the assessm~nt of the firm should not be. disturb-ed, except within four years therefrom. Under the Income-tax Act, 1922 final assessment could not be altered except under pro-ceedings sanctioned by s. 34 or s. 35 of the Act within the limits of time thereby . prescribed. Leaving aside for moment the point of time when sub-s. (5) came into the statute book, on plain reading of the p;:ovision it appears to us that the legisla-ture intended that the finding as to the non-inclusion of the pro-D per share of the partner in the profit or loss of the firm in the assessment of the partner should excite the power of rectification. The power is to be exercised whenever "it is found on the assess-ment or re-assessment of the firm or on any reduction or enhance-ment inade in the income of the firm". The subject matter of rectification is the completed assessment of partner in firm. This is brought out by the use of me words "where in respect of any completed asssessment of partner in firm". There is noth-ing in the section to show that such "completed assessment" must take place after the provision i.e. s. 35 ( 5) was brought on the statute book. What is to take place to give rise to the power of rectification is the finding on the assessment or re-assessment of p the. finn etc. The finding alone musi be made after section comes into fo•ce. The finding is to be given effect to or made more ope-rative on the "completed assessment" of partner. As the mis-chief sought to be rectified was the discrepancy between the income of the partner assessed as an individual and his income as com-puted on the assessment of the finn, the legislature must be held to. have made the remedy, applicable whenever the mischief was discovered. There would have been nothing unjust in making the power of rectification exercisable at any time after the discovery of the discrepancy but the legislature in its wisdom did not think that the power should be used except ·within limited period of four years from the date of the final order.

This group of appeals has been referred to .a larger Bench than one of the three Judges before whom 'the matter was opened on May 4, 1967 because of the earlier decisions of this Court. We now proceed to examine these decisions chronologically. In The

lllcome-tax Officer, M{lf.fras v. S. K. Habib11/lah(') the facts were as follows .. One Mohiuddin who was partner in two registered firms submitted returns of his income incorporating therein the estimated share of losses in the two firms for the assessment years 1946-47 and 1947-48. The estim:aes of the assessec were accep-ted by the Income-tax Officer who completed the assessment for the two years on February 20, 1950. The assessment of one of the firms for the same years was completed on October 31, 1950 but the proportionate share of the assessce for the losses was com-puted at much smaller figures. The asse~sment of the other firm for 1947-48 was completed on June 30, 1951 again for smaller sum than that estimated by the assessee. The Income-tax Officer started rectification proceedings on t.lay 4, 1953 and ultimately passed an order for rectification on March 27, 1954 after taking into account the share of the losses as computed in the assess-ment of the two firms. It will be noted at otlce that the finding about the incorrectness of the losse~ of the firm as estimated by the assessce as also the completion of his assessment preceded April I, 1952 and on the view of the section which we have taken it could not be made applicable at all. It was stated in exoress terms by this Court :

"The power to rectify as.sessment of partner con-sequent upon the assessment of the firm of which he is partner by including or correcting his share of profit or loss can therefore be ex~rcised only in the case of assessment of the firm made on or after April 1, 1952."

The decision in llabibullah's([1 ]) case therefore in no way con~:.:ts with the view of s. 35(5) which we have taken above. In passing, however, it may be noted that in Habibullah's(') case a·reference was made to sub-s. (6) of s. 35 which was introduced in the statute book by s. 19 of the Amendment Act of 1953 at the same time as sub-s. (5). There are certain words in sub-s. (6) which are not to be found in sub-s. (5) and on contrast berween the language used in the two sub-sections it was observed in Habibul/ah's(') case:

"When the Legislature under cl. (6) of s. 35 ex-pressly authorised rectification in the circumstances men-tioned therein even if the assessment has been completed before the Indian Income-tax (Amendment) Act, 1953. and it made no such provision in cl. (5), it would be reasonable to infer that the Legislature did not intend to grant to the revenue autho,~ties power to rectify as~•­ments falling within cl. (5) where the firm's assess-ment was completed before April I, 1952." co (19621 SuPi>· 2 s.c.R..~716,

This reasoning was advanced berore us in aid of the argument that sub-s. (5) should have no retrnspective operation beyond April l, 1952. We do not want to express any view as to the interpretation of sub-s. (6) . but in our opinion, sub-s: (5) was clearly intended to give retrospective effect to final orders made in the case of the firm by incorporation of the result thereof in II the case of the partner as an individual. The second decision of this Court is that of Second Addi. Income-tax Officer v. Atma/a Nagaraja('). In this case the pro-ceedings related to the assessment of the respondent for ·the a~sess­ment year 1950-51. The respondent in one of the appeals was assessed as an individual while in the other appeal tne respondent was assessed as Hindu undivided family. The original assess-ment was completed in both ca~es on January 22, 1952. Th" two assessees ~eld shares in two registered firms and the share.' from the profits of these firms were included in the assessable ncome of the two respondents. The assessments of the firms were completed by an order dated October 16, 1954 when it wa' 'found that the aggregate shares of income from the two firms in the case of each of the respondents were more than that for what they had been assessed. After starting proceedings under s. 35 an additional demand was made whereupon the respondents moved the. High Court of Andhra Pradesh. After referring to Habibu//ah's(') case and K. Lakshminarayana Chetty's(") case it was said: "The assessment of the respondents was final ru;-sessment before April 1, 1952, and sub-section (5) has not been made applicable to such assessment, either ex-pressly or by implication. It has been given limited retrospectivity from April 1, 1952, and it was held by this court in the cited case that it was not open to courts to give more retrospectivity to it. Resort in this case could only be taken to the law as it stood before the introduction of sub-section (5), and as determined al-ready by this court, the record of the firm's assess-ment could not then be called in aid to de)nonstrale ·an error on the record of partner's assessment. . . . In our opinion, sub-section (5) could not be used in this case, and the decision of the High Court was right."

With very great respect, we find ourselves unable to concur. As we have already said, sub-s. (5) becomes operative as soon a' it is found on the assessment or re-assessment of the firm or on any reduction or enhancement made in the income of the firm (l} 46 I.T.R. 609. , (2) [1%2] Supp. 2 S.C.R. 716.

(3) 29 l.T.R. 419.

LIOSup.(Cl)/68-4

that the sha11: of t~e partner in the profit or loss of the firm had not been mcludcd m the assessment of the partner or if included was not corrc~t. The completion of the assessment of the part-ner as an md1v1dual need not happen after April 1, I 952. The rnmplctcd assessment of the partner is the subject matter of recti-l!cat.Jon and this may have preceded the above mentioned date. Such Clllllplction docs not control the operation of the sub-section. In the result, we find ourselves unable to concur in the decision or the reasoning in Alma/a Nagaraj's(') case.

The last case in the series is that of Ahmedabad Manufac!ur-ing 1md Calico Printiug Co. Lid. v. S. C. Mehta('). In this case the Court had to consider sub-s. (l 0) of s. 35 which was intro-duced by s. I 9 of the Finance Act, I 956. The Bench hearing this appeal was composed of five Judges and two of them, S. K. Da~ and J. L. Kapur, JJ., took the view that Habibu/lah's("') case had been correctly decided but that Atma/a Nagaraj's(') case might require re-consideration although they did not express any final opinion on that point. Sarkar, J. (as he then was) did not think that much assistance could be had from Habibullah"s case(") in the matter of interpretation of sub-s. (I 0) of s. 35. He said further :"There is nothing in S. K. Habibullah"s(") case to indicate that in the opinion of the learned Judges ueciding it there were any words which would incJicate that suo-s. (5) was to have retrospective operation. In my view, sub-s. (I 0) contains such words."

The judgment of the two other Judges. Hidayatullah and Raghubar DJyal, JJ. was delivered by HidJyatullah, J. wlic dealt with the subject of rctro>pectivc opera! ion of statutes elaborately and discussed llabihul/ah"s case(") at some length and expressed the view (at p. 125) that although the section mentioned the final order in the firm's assessment as the starting point "there was nothing tc> show that this new terminus quo must be after 1-4-I 952 before sub-s. ( 5) could be used." According to Hidaya-tullah. J. "the words of the sub-section were entirely indifferent to this aspect." The learned Judge was however careful to add that this must not be considered as his final opinion on sub-s. (5). Any opinion of Hidayatullah, J. even with the above qualification merits the highest .respect. After giving very amdous considera-tion to the views expressed by the learned Judge, we still hold that hy sub-s. (5) of s. 35 the legislature intended that rectifica-tion should be made on the finding as to the incorrectness of the as~ment of the firm after the provision was introduced in the statute book, viz., 1·4-1952. There would have been nothing unjust or inequitable in the legislature directing that rectification

(I) 46. I.T.R. 609.

(2) [1963! Supp. 2 s.c.R. 92.

(3) [1962] Supn. 2 S.C.R. 716.

of the assessment of the partner should always follow the assess-ment or re-assessment of the firm made finally. On the other •and, we think rectification of the partner's . assessment should logically follow the re-assessment or modification of the firm's assessment. Otherwise, there would be an unaccounted for divergence between person's assessment as an individual and his assessment as partner of firm. But the legislature, in our opinion, did not intend to disturb completed assessment cif part-ners except within the period of time indicated earlier in this judgment and unless the finding as to the incorrectness of the firm's assessment was made after the terminus quo above men-tioned.

In the result, the appeals <ire allowed. The judgment and order of the High Court of ·Madras are set aside and the orders of rectifiction passed by the Income-tax Officer are held to be effective and binding on the respondents. In the circumstance~ there will be no order as to the costs of these appeals.

Hegde, J. The respondents in these appeals were the partners of registered firm carrying on business in gunnies. For the assessment year 1943-44, i.e., the assessment year ending March 31, 1944, the firm in .. question was assessed to tax on 22-1-46. Two days thereafter, namely on January 24, 1946, the partners of the said firm were also assessed to tax for the assessment year 1943-44 after taking into consid!ration their share of profits in the firm. The Indian Income Tax Act 1922, to be hereinafter referred to as the Act was amended by Act 25 of 1953. The said amending Act among other provisions incorporated s. 35 ( 5) into the Act. Section 1 (2) of that Act provided that "subjecr to any special provision made in this behalf in this Act, it shall be deemed to have come into force on ::he 1st day of April 1952". On September 11, 1952, the ITO issued notice to .the firm under s. 34 of the Act requiring the firm to show cause why its assessment for the assessment year 1943-44 should not be re-opened and enhanced for the reasons mentioned in that notice. In the proceedings that followed the assessment of the firm was substantially en-hanced on 30-5-59. Thereafter, the proceedings against the res-pondents were initiated under s. 35 ( 5) read with s. 35 ( l) as per the notices dated 24-7-59. fo those proceedings the assessment of the respondents for the assessment year 1943-44 was enhanced. The respondents challenged the validity of those proceedings in the High Court of Judicature at Madras in writ petitions 1229-1233 of 1961 on its file. The High Court following the decisions of this Court in Income Tax Officer, Madras v. S. K. Habibullah( [1]) and Second Additional Income Tax Officer, G11rit11r v. Atma/a Nagaraf and others("), allowed those writ petitions and quashed

(I) [1962] Supp. 2 s.c.R. 716.

[1968]2 s

the impugned orders. foese appeals are directed against the said decision.

As the matters now stand, the question of law arising for deci-sion is not res integra. It is concluded by the decision of th.is Court in Atma/a Nagaraj's(1) case, wherein this Court laid down that sub-s. 5 of s. 35 was not applicable to cases where the asseM-ment of partner of firm was completed before April 1, 1952 even though the assessment of the firm was completed after April 1, 1952.

Evidently, encouraged by some of the observations in the

decision of this Court in Ahmedabad Mfg. & Calico Printing Co., Ltd. v. S.S. Mehta, Income Tax Officer and another('), Mr. S. K. Aiyer, learned counsel for the department contended that Habi-bul/ah's(1) case and Atma/a Nagarafs(') case were not correct-ly decidcJ and that they should be overruled. Though the majo-rity have not acceded to the contention of Mr. S. K. Aiyer that Habibul/ah's(') case has not been correctly decided, it has accept-ed his contention that Atma/a Nagarafs(') case was not corrxtly decided. As I am unable to concur with that conclusion, I am constrained to deliver this dissenting judgment. In my opinion, no case is made out to overrule the decision of this Court either in Habibul/ah's([1 ]) casr. or in Atma/a Nagarafs(') case As seen earlier, the assessments in question were made as far back as January 24, 1946. E.fery assessment under the Act is final unless the same is modified in appeal or revision or re-opened under s. 34 or rectified under s. 35. The assessment with which we are concerned in this case was neither modified in appeal or revision nor reopened under s. 34. The question for decision is whether it can be rectified under s. 35.

Under the Act, the assessment of firm and the assessment of

its partners are two different assessments though in assessing partner his share in the firm's profits is added to his other income. In fact, the profits of registered firm are subject to double tax, firstly in the hands of the firm and nextly in the hands of its part-nezs. As the law stood prior to the amending Act 25 of 1953, the assessment of partner could not be rectified under s. 35 ( 1) on the ground that the !inn's assessment had been enhanced as result of re-assessment. In other words, the re-assessment of firm could not be considered as mistake apparent from the re-cords of the assessment of its partners. That wa~ the view taken by the Andhra Pradesh High Court in Kanumar/apudi Lakshmi-narayana Chetty v. First Additional Income tax Officer, Ne/· lore (4) and ¢.at view was accepted as correct by this Court in Habibullah's case('). Therefore, all that we have to see is whether

(1) 41i I.T.R. 609.

(2) [1963) Supp. 2 S.C.R. 92. (4) 29 I.T.R. 419.

(31 [1962] Sup. 2 S.C.R. 716.

s. 35 ( 5) one of the group of clauses added by Act 25 of 195 3 could have been availed of by the ITO in making the impugned rectifications. ·

Section 35(5); the the extent it is material for our present purpose, reads ~s follows : "Where in respect of any completed assessment of partner in finn, it is found on the assessment or re-assessment of finn .... 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 cor-rect, the inclusion of the share' of the assessment or the correction thereof, as the case may be, shall be deemed to be rectification of mistake apparent from the record within the meaning of this section, and provisions of sub-sections ( 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." Section 35 ( 1) empowers the income tax authorities to rectify mis takes apparent from the record of certain orders pasoed by them. The clause (omitting parts not material) provides th;tt the income tax officer may,· any time within the 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. As seen earlier, prior to the amending Act 25 of 1953, the ITO could not have made the rectifications with which we are concern-ed in these appeals. Therefore, the question for decision is whether by the exercise of the powers conferred on him by s. 35 ( 5), the ITO could have validly made the impugned rectifica-tions? it may be noted that in these cases both the assessment of the finn as well as the assessment of its partners were made long be-fore April 1, 1952. But the assessment of the firm was reopened and the firm reassessed after that date. In Habibul/ah's(') case this Court laid down that the legislature had given to cl. 5 of s. 35 which was incorporated with effect from April 1, 1952, partial retrospective operation. The provision enacted by cl. 5 is not procedural in character. It affects the vested rights of the assessee. Therefore in the absence of compelling reasons, the court would not be justified in giving greater retrospectivity to that provision than is warranted by the plain words used by the legislature. Cl. 5 of s. 35 does not purport to amend cl. 1 of the same section. It confers additional powers upon the income tax authorities and that power cannot be exercised in respect of assess-ment of firm which had been completed before the date on which the power. had. been invested. This Court quoted with approval (I) [1962]Supp. 2 S.C.R. 716.

the observations of the Privy Council in lncon:ie 0Tax Commis-sioner v. Kfzemchand Ramdas( [1]) :

"When once final asses~ment is arrived at, it can-not, in their Lordships' opinion, be reopened except in the circ~mstances detailed in sections 34 and 35 of the Act .... and within the time limited by those sections."

From this decision the correctness of which is not doubted by the majority, it follows that s. 35 ( 5) is only retrospective as from April I, 1952; it has no greater retrospectivity and that section cannot affect vested rights. No doubt that decision was dealing with the assessment of firm, but the ratio of that decision, in my opinion, applies with equal force to the assessment of partner. If the assessment of firm made before April l, 1952 cannot be:. reopened under s. 35(1) read with s. 35(5), the same must be equally true of the assessment of partner uf firm. The ratio of the decision in Habibullah's(2) case is that qghts which have become final prior to April 1, 1952 cannot be affected by having recourse to s. · 35 ( 5).

By applying the ratio of the decision in Habibul!ah's(') case. this Court held i:i. Atma/a Nagaraj's([3 ]) case that sub-s. 5 of s. 35 was not applicable to cases where the assessment of partner wa' completed before April l, 1952 even though the assessment of the firm of which he was the partner wa.' completed after April I, 1952. At p. 612 of the report, this is what this Court observed in Atma/a Nagaraj's(') case :

"Here, the original assessment wa, made before the amendment. and to that assessment the amended provi-sion cannot still be made applicable for the reason to be given by us, even though the assessments of the firms were after April I, 1952, and sub-section ( 5) has not been made applicable to such assessment, either ex-pressly or by implication. It has been given limited retrospectivity from April I, 1952, and it was held by this court in the cited case that it was not open to courts to give more retrospectivity to it. Resort in this case could only be taken to the law as it stood before the in-troduction of sub-section ( 5), and as determined al-ready by this Court, the record of the firm's assessment could not then be called in aid to demonstrate an error on the record of partner's assessment. It was further held in S. K. Habibullah's([2 ]) case that the provision enacted by sub-section (5) is not procedural in character and that it affect~ vested rights of an assessee. In our I.A. 218. (2) [t 962) Supp. 2 s.c.R. 716.

(I) 65 I.A. 218.

(3) 46 l.T.R. 609.

opinion, sub-section ( 5) could not be used in this case, and the decision of the High Court was right."

It may be noted that both the decisions in Habibullah's case(') and Atmala Nagaraj's case(") were rendered by the same Bench (consisting S. K. Das, Hidayatullah and Shah, JJ.) I am un-B able to accept the contention that Atmala Nagaraj's case(2) laid down any new legal principle. It merely applied the principle laid down in Habibullah's case(') to the facts of that case. Iu my opinion there is HO legal basis to distinguish the one from the other.

In Ahmedabad Manufacturing and Calico Ptg., Co., case([3]), this Court was called upon to interpret the scope of sub-s. 10 of s. 35 of the Act which was brought into force on April 1, 1956. The language of that provision is wholly different from that of s. 35 ( 5). It is not clear. from the report why in that case it be-came necessary to consider the correctness of the decisions of this Court in Habibullah's case('! and Atmala Nagaraj's(") case. But it appears that in the course of the argument£ the correctness of those decisions was put into issue. Three separate judgments were delivered in that case, one on behalf of ~. K. Das and Kapur, JJ, by Das, J. another on behalf of Hidayatu!lah and Raghubar Dayal, JJ. by Hidayatullah J, and the third by Sarkar, J. Sarkar, J, in his judgment, merely referred to Habibullah's case(') and not to Atmala Nagaraj's([2 ]) case. Dealing with Habibul/ah's case('), this is what his. Lordship observed :

"As to S. K. Hablbullah's case(') I do not think that much assistance can be had from it. It applied the rule of presumption against statute having retrospective operation-as to which rule, c;>f course, there is no dis-F pute-to sub-s. (5) of s. 35. Now cases on the cons-truction of one statnte are rarely of value in construing another statute, for each case turns on the language with which it is concerned and statutes are not often ex-pressed in the same language. The language used in sub-ss. ( 5) and (IO) seems to me to be wholly diffe-G rent. There is nothing in S. K. Habibullah's 'case(') to indicate that in the opinion of the the learned Judges deciding it there were any worqs which would indicate that sub-s. ( 5) was to have retrospective operation. In my view, sub-s. (10) contains such words. Further-more, I do not find that the other considerations to which I have referred arose for discussion ·iri that case. In my view, the two cases are entirely different."

(I) [1962] Supp. 2 s.c.R. 716. (2) 46 I.T.R. 609 . (3) [1963] Supp. 2 s.c.R. 92:

Das, J. accepted the correctness of the decision in Habibu//ah's case(') but while dealing with Atma/a Nagaraj's case(') he ob-served :

"We may point out, however, that in Second Addi-tional Income tax Officer v. Atma/a Nagaraj(') this court went step further and held that sub-s. ( 5) of s. 35 was not applicable to cases where the assessment of the partner was completed before April I, 1952, even though the assessment of the firm ·was completed after April 1, 1952.-Learned counsel for the appellant frankly conceded before us tha~ he did not wish to go as far as that and contend that even in case where declaration of dividend was made after April 1. 1956, sub-s. (10) would not apply; because $it would makr sub-s. (10) unworkable.' The decision is Second Additiornil Income Tax Officer v. Atma/a Nagaraj(') may perhaps require reconsideration as to which we need not express any final opinion now, but so far as this case is concerned we see no reason why the. principle in S. K. Habibu/lah's case( [1]) will not apply."

But Hidayatullah, J. who as mentioned earlier was party to both the decisions dealing with those decisions observed :

"We do not naturally express final opinion on sub-s. (5). We must leave that to future case. We must, however, say that the two earlier cases may have

to be reconsidered on some future occasion."

For the reasons to be presently stated I would rather prefer to follow the decisions in Habibu//ah's case(') and Atma/a Nagarafs case([2 ]) which I am sure must have been rendered after deep consi-deration rather than the passing doubts hesitatingly expressed by two of the learned Judges who were parties to those decisions. As seen earlier, even the majority has not shared the doubts expressed by Hidayatullah, J. as regards correctness of the decision in Habibu//ah's case(').

The rule laid down in Habibu//ah'~(1 ) ) and Atma/a Nagaraj's(") cases is well settled rule. Dealing with the inter-pretation of taxing statutes, it is observed in Halsb_u_ry's Laws of England (Vol. 36, pp. 416-17):

Habibu//ah'~(1 ) ) and Atma/a Dealing with the inter-observed in Halsb_u_ry's Laws of

"The language of statute imposing tax, duty or charge must receive strict construction in the sense that there is no room for any intendment, and regard must be had to the clear meaning of the words. If the Crown claims duty under statute, it must show that that duty is imposed by clear and unambiguous words, and where the meaning of the statute is in doubt, it must (I) (19b21 Supp. 2 S.C.R~716:-(2) 461.T.R 6~9.

be construed in favour of the subject, however, much within the spirit of the law the case might otherwise appear to be; but fair and reasonable consn;iction must be given to the language used without learung to one side or the oth~r.

The rule that the literal construction of statute must be adhered to, unless the context renders it plain that such construction cannot be put on the words, is especially important in cases of statutes which impose taxation. There is no rule admitting equitable construc-tion of taxing statute; tliat is to say cases which are not within the actual words of the statute cannot be brought within the statute by consideration of its governing principle or intention."

Rowlatt, J. observed in Cape Brandy Syndicate v. Inland Revenue Commissioners(') :

"fn taxing Act one has to look merely at what is clearly said. There is no room for any intendme!!t. There is no equity about tax. There is no pre~ump­tion as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."

These principles have been accepted as correct , both by the English Courts and the superior courts in this country. It is now well settled that if the interpretation of fiscal enactment is in doubt, the construction most beneficial to the subject should be adopted even if it results in obtaining an advantage to the sub-ject; the subject cannot be taxed unless he comes within the letter of the law and the argument that he falls within the spirit of the law cannot avail the department.

In Commissioner of Income tax, Bombay v. Provident Invest-mel1t Co., Ltd.("), this Court quoted with approval the following passage from an earlier decision of this Court in A. V. Fernandez v. State of Kera/a (') :

"If the Revenue satisfies the Court that the case falls strictly within the provisions of the Jaw, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by ana-logy or by trying to probe into the intentions of the legis-lature and by considering what was the substance of the matter. We must of necessity, therefore, have regard to the actual provisions of the Act and the rules made there-

(l) [1921] l K.B. 64. (2) 32 I.T.R. 190.

under before we can come to the conclusion that the appellant was liable to assessment as contended by the Sales Tax authorities."

Bombay v. Elphinstonc

In Commissioner of Income tax, Bombay v. Elphinstonc Spinning and Wea~·ing Mills Co., Ltd.('), this Court held that if the words of the taxing statute fail, then so must the tax. The courts cannot, except rarely and in clear cases, help the draftsmen by favourable construction.

In Commissioner of Income tax, Bombay v. Jalgavn Electric Supply Co., Ltd("), this Court again observed:

"The income tax law seeks to bring within the net of taxation certain class of income, and can only success-fully do so if it frames provision appropriate to that end. If the law fails and the tax payer cannot be brought within its letter, no question of unjustness as such arises."

In Banarsi Debi and another v. Income tax O!]icrr, Ca/-cu/fa, and others([3]), it was observed:

'"Before construing the section it will be useful to notice the relevant rules of construction of fiscal statute. In Oriental Bank Corporation v. Wrigh) (5 A.C. 842) the Judicial Committee held that if statute professed to impose charge, the intention to impose charge on the subject must be shown by clear and unambiguous lan-guage. In Canadian Eagle Oil Co. v. R. [19461 A.C. 119, Viscount Simon L.C. observed : , 'In the words of Rowlatt. J ..... in taxing Act one has to look merely at what is clearly said. There is no room for any in-tendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in. Nothing is to be implied. One can only look fairly at tne language used."

In other words, taxing statute must be couched in axpress and unambiguous language. The same rule of construction has been accepted by this court in Gursahai Saigal v. Commissioner of Income tax ( 48 l.T.R. I) wherein it was stated: ' .... it is well rccogr.'s-cd that the rule of construction that if ca~e is not covered within the four corners of the provisions of taxing statute no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance

(2) 40 1.T.R. 184.

(I) 40 1.T.R. 142.

(3) ~3 l.T.11.. 100, 104.

of the matter, applies only to taxing provision and _has no application to all provisions in taxing statute':'

In Commissioner of Income tax, Madras v. Ajax Products Ltd. ( [1 ]) this Court quoted with approval the rule laid down by Rowlatt, J. in Cape Brandy Syndicate case(") to which reference has already been made. It went further and observed :

"To put in other words, the subject is not to be ~ed unless the charging provision clearly imposes the obhga-tion. Equally important is the rule of cons,!fllction that if the words of statute are precise and unambiguous, they must be accepted as declaring the express intention of the legislature."

From the foregoing decisions it is clear that the consideration whether levy is just or unjust, whether it is equitable or not, consideration which appears to have greatly weighed with the majority, is wholly irrelevant in considering the validity of levy. The courts have repeatedly observed that there is no equity in tax. The observations of Lord Hatherley. L.C. in Pardo v. Bingham(") "In fact we must look to the general scope and pur-view of the statute, and at the remedy sought to be applied, and consider what was the former state of the law, and what it was that the Legislature contemplated", were made while construing non-taxing statute. The said rule has only limited .applica-tion in the interpretation of taxing statute. Further, as observ-ed by that learned Judge in that very case the question in each case is "whether the legislature had sufficiently expressed its inten-tion" on the point in issue.I do not think that· the impugned assessments can be said to be just or equitable even if that consideration is at all relevant. The assessments of partners of firms, whose assessments had be-come final before April 1. 1952 cannot be reopened. There is no just or equitable ground to differentiate the case of the respon-dents from those assessees. As seen earlier, the assessment of the respondents had· become final as far back as 1946. Thev would have arranged their affairs on that basis. · Thirteen year'., thereafter, they were called upon to pay additional tax. It can-not be said that that is just or equitable.

This takes me to the question whether the impugned assess-ments come clearly within the scope of s. 35(5). That is the only relevant consideration. But before going into that question we must remind ourselves that the assessments of the respondent' II had become final in the year 1946 and under the law as it stood prior to the enactment of s. 35 ( 5), those assessments could not

(I) 55 l.T.R. 741..[1965] I S.C.R. 7J1 (1) [1921] I. K.B. 6-1.

\3) 4 Ch. Appeals 735.

h.aye ~n interfered.with. Section 35(5) unlike several other pro-

\ls1ons m .the amendmg Act of 1953 had been given only partial retrospective effect. It 1s made to be operative a> from April I, 1952. In this background let us now proceed to examine s. 35(5).

Before case can be hel<l to fall within the scope of s. 35(5), two requirements must be satisfie<l, namely, ( 1) that the assess-ment or rea,sessment of . the lirm must have taken place on or after April I, 1952, and ( 2) the assessment of the partner must be "completed assessment'". The next question to be decided is whether the "completed assessment'' referred to ins. 35(5) in-cludes an assessment which had become final prior to April I, 1952. I am unable to find out how the firm's assessment could have hecn validly reopened under s. 34, in September 1952. By the time the notice under s. 34 was issued, the eight years' period of limitation prescribed ins. 34 had expired. But the validity of the lirrn's re-assessment does not appear to have been challenged at any time before the hearing cf these appeals. Hence it is not safe t0 pursue ;hat question.

The concept of "completed assessment" was introduced for the first time by the amen.'.;ng Act 25 of 1952. The Act as it stood till then only spoke of assessment;;, re-assessments and recti-fication of assessments. What did the legislature mean by saying "completed :Lssessment" ins. 35(5)? That expression is not defin-ed in the Act. The legislature must be considered to have deli-beratcly llscd that expression in place of the expression "assess-ment" an expression familiar to courts and the connotation of which is well settled. On tbe basis of well recognised canons of construction of statutes we must give that expression meaning . different from that given to "assessment". Evidently, the legisla-ture used the expression "completed assessments" to distinguish that class of assessments from assessments which are final under the Act. It appears to me, by using that expression, the legisla-ture intended that the assessment of partner should not be cOnsi-<lered as final assessment till the assessment of the firm becomes lioal. In other words, the partner's assessment would continue to be tentative till the company"s assessment becomes final. If that be the true interpretation of the expression "completed assess-mcmt", as I think it is, then that expression can only appty to assessments of partners made on or after April I, 1952. The respondents' assessments as mentioned earlier had become final prior to tl1at date. Hence the respondents' assessments cannot be considered as "completed assessments" within the meaning of that word in s. '.15 ( 5). Consequently those assessments must be held to be outside the scope of that section.

Section 35 ( 5) neither expressly nor by necessary implication empowers the I.T.0. to reopen assessments which had become final. If the legislature wanted to confer such power it should have said so as it did in s .. 35 ( 6) and in several other provisions in the amending Act,-ss.3(2), 7(2) and 30(2) of that Act. Fur-ther, ifs. 35(5) empowers the reopening of all final assessments of partners of firms, where was the need to give that provision partial retrospectivity ? That very circumstance negatives the contention of the department. Even if it is to be held that the expression "completed assessment" is an ambiguous expression, in that event also, the power conferred under s. 35(5) could not have been exerc~ to rectify the assessments in question.

From the foregoing it follows that the decision of this Court in Atma/a Nagarafs case(') is correct. Even asswning thats. 35(5) can receive different interpretation and that interpretation is more reasonable than that,~dopted-by this Court in Atma/a Nagarafs case( [1]), in that even also this Court would not be justified in over-ruling its previous decision, which has the force of law in view of Art. 141 of the Constitution. I am of the opinion that the deci-D sions of this Court should not be overruled except under com-pelling circumstances. It is only when this Court is fully con-vinced that public interest of substantial character would be jeopardized by previous decision of this Court, thiio Court should overrule that decision. Every time this Court overrules its pre-vious decisi-On, the confidence of the public in the soundness of the decision of this Court is bound to be shaken.

Re-consideration of the decisions of this Court should be con-fined to questions of great public importance. In law finality is of utmost importance. Legal problems should not be treated as mere subjects for mental exercise. This Court must overrule it~ previous decisions only when it comes to the conclusion that it is manifestly wrong, not upon mere suggestion that some or all of the members of the later Court might arrive at different conclu-sion if the matter was res integra. In Bengal Immunity Co. Ltd. v. The State of Bihar and others("), this Court laid down that there is nothing in the Constitution which prevents the Supreme Court from departing from previous decision of its own if the Court is satisfied of its error and its baneful effect on the general interest of the public; Das, Acting C.J., speaking for the majority, observed in the course of his judgment (at p. 630 of the report): '

"It is needless for us to say that we shoud not lightly dissent from previous pronouncement of this Court. Our power of.review, which undoubtedly exists, must be exercised with due care and caution and only for advanc-ing the public well being in the light of the surrounding

(IJ 46 I.T.R. 609.

(2) [1955) 2 S.C.R. 603.

circumstances of each case brought to our notice·but we do not consider it r!ght to confine our power within rigidly fixed limit~ as suggested before us."

The question of law with which we arc concerned in this case was of minor importance. at all times. It has become all the more so because of the passage of time, as it has relevance only to assess-ments of partners of firms made before April 1, 1952, and that too in cases where the question of enhancing those ·assessments arises as result of the assessment or re-assessment of the concerned firms on or after April I, 1952. Such cases are not likely to be many. For the reasons mentioned above, I dismiss these appeals with costs.

ORDER

In accordance with the opinion of the majority the appeals ,are allowed, the judgment and order of the High Court of Madras are set aside and the orders of rectification passed by the Income tax Officer are held to be effective and binding on the respondents. In the circu1mtanccs there will be no order as to costs of these appeals. G.C.