Commissioner Of Income-Tax v. Royal Motor Car Co.

1. In this case, at the instance of the revenue, the following questions have been referred to us for out opinio :

"(1) Whether the finding of the Tribunal that the penalty order made by the Inspecting Assistant Commissioner under section 271(1)(c) read with section 274(2) as it stood before the amendment by the Taxation Laws (Amendment) Act, 1970, was time barred, is erroneous in law in view of the amendment of section 275 by the aforesaid Amendment Act with effect from April 1, 1971 ?

(2) Whether the finding of the tribunal that the Inspecting Assistant Commissioner had not jurisdiction under section 274(2) of the Act, in view of its amendment by the abovesaid Amendment Act, 1970, was erroneous in law ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in cancelling the penalty levied by the Inspecting Assistant Commissioner ?

2. The facts giving rise to this reference are as follow : The relevant assessment year is 1968-69. At the time of passing the assessment order, the Income-tax Officer had held that a cash credit of Rs. 3,100 was not established by the assessee and hence it was added to the income of the assessee. The assessee had claimed deduction for two items of interest, namely, Rs. 2,680 paid to Harsukhlal Vadilal Chokshi and Rs. 880 paid to Gorakh Bachubhai & Company. The Income-tax Officer held that these amounts of interest were also not in fact paid. These two items of interest were, therefore, disallowed. Thus, the total amount disallowed was Rs. 6,660. At the time of passing the assessment order on October 3,1969, the Income-tax Officer had also directed that penalty notice under section 274 read with section 271 for not furnishing correct particulars of income should be issued. As the law then stood, the minimum penalty leviable being in excess of Rs. 1,000, it was only the Inspecting assistant Commissioner who was competent to impose the penalty in this case. Under section 275 as it stood before the Amendment Act of 1970 which came into force with effect from April 1, 1971, the period of limitation was two years from the date of the initiation of penalty proceedings. Hence, if the law had stood unamended, the Inspecting assistant Commissioner was required to pass the order of penalty before October 3, 1971. However, the new amendment Act namely, the Taxation Laws (Amendment) Act, 1970 was brought into force with effect from April 1, 1971, and as a result the period of limitation was enlarged from two years from the date of the initiation of penalty proceedings to two years from the end of the financial year in which the penalty proceedings passed the order of penalty on October 12, 1971, levying a penalty of Rs. 6,810. Against the order of the Inspecting Assistant Commissioner the assessee, which is a registered firm, went in appeal to the Tribunal and the Tribunal held that if the Amendment Act of 1970 were to apply, then the Inspecting Assistant Commissioner had no jurisdiction to hear the case and if the Amendment Act were not to apply, then the order of penalty was barred by limitation. Under these circumstances the appeal filed by the assessee firm was allowed and thereafter, at the instance of the revenue, the above mentioned three questions have been referred to us.

3. Before the Amendment Act of 1970 which came into force with effect from April 1, 1971, under section 274, when the case was falling under clause (c) of sub-section (1) of section 271 and the minimum penalty imposable exceeded a sum of rupees one thousand, the Income-tax Officer was bound to refer the case to the Inspecting Assistant Commissioner who was to have all the powers conferred under the Chapter in which section 274 is set out for the imposition of penalty. Under section 274 as it stood before the amendment no order imposing a penalty under that Chapter could be passed after the expiration of two years from the date of the completion of the proceedings in the course of which the proceedings for the imposition of penalty had been commenced. The Taxation Laws (Amendment) Act, 1970 (42 of 1970), provided, inter alia, for amendment of sections 274 and 275. By section 49 of the Amendment Act, in section 274 of the Income-tax Act, in sub section (2), for the words "the minimum penalty imposable exceeds a sum of rupees one thousand" the word "the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of twenty-five thousand rupees" were substituted. By section 50 of the Amendment Act, an entirely new section 275 was substituted for the old one and so far as we are concerned, under new section 275(b) no order imposing a penalty under this Chapter shall be passed after the expiration of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. If the period of limitation under the new section is to apply, then it is obvious that the financial year in which the order was passed by the Income-tax Officer and the penalty proceedings were initiated was in the financial year 1969-70. That financial year was expiring on March 31, 1970, and hence the period of limitation would expire on March 31, 1972. In the instant case, the Inspecting Assistant Commissioner had passed the order of penalty on October 12, 1971, and, therefore, if the new section is to apply, then the order of penalty would be within time. It is well-settled law that as regards matters of procedure, the legislature can make changes and those changes would apply so far as limitation is concerned pending proceedings unless a vested right has accrued to any party by reason of the old period of limitation having expired. In the instant case, the new section came into force with effect from April 1, 1971. On that day, even under the old unamended section the time for passing the order of penalty had not expired and, therefore, by this well recognised principle of interpretation the period of limitation stood enhanced or enlarged up to March 31, 1972, so far as the facts of this case were concerned. In this order, the Tribunal has observed in paragraph 1 :

"If we consider that the penalty has been imposed under the Act as it stood before amendment in 1970 then it is clearly out of time. Even if the amendment of 1970 has to be taken into consideration then the Inspecting Assistant Commissioner is not competent to impose the penalty. Hence, in any of the alternative views, penalty cannot be sustained."

4. At least so far as the question of limitation is concerned, it is obvious that the old section cannot apply after the Amendment Act since the entire old section was substituted by the new section and what we are concerned with in the present case is the application of the well-settled rule of law that limitation is a matter of procedure and unless there is something in the context or by express words the legislature has expressed it, new period of limitation would always apply to pending proceedings as well. Under these circumstances, at least on one out of the two alternatives, the position is very clear, namely, that the order of the Inspecting Assistant Commissioner, was within limitation.

5. As regards the jurisdiction of the Inspecting Assistant Commissioner to pass the order of assessment in view of the amendment in section 274 by the amendment act, it is well-settled law that every litigant has a vested right in the procedural law so far as substance is concerned and if the substantive question of jurisdiction is to be affected by a new amendment the legislature must say so either in express terms or by necessary implication. Since the decision of the Privy Council in Colonial Sugar Refining Company Ltd. v. Irving [1905] AC 369 (PC) the principle has been well recognised that though the right of appeal is a procedural right, it is a vested right. It becomes vested at the time when the proceedings are initiated in the Tribunal or the court of first instance and unless the legislature has by express words or by necessary implication clearly so indicated, that vested right will continue to him in spite of the change in the jurisdiction of the different Tribunals or forums. At page 372 of the report it has been state :

"To deprive a suitor in a pending action of an appeal to a superior Tribunal which belonged to him as of right is a very different thing from regulating procedure. In principle, their Lordships see no difference between abolishing an appeal altogether and transferring the appeal to a new Tribunal. In their case there is an interference with existing rights contrary to the well-known general principle that statutes are not to be held to act retrospectively unless a clear intention to that effect is manifested."

6. The decision in Colonial Sugar Refining Company v. Irving [1905] AC 369 (PC) has been followed by the Supreme Court in India in numerous cases and by now has become the locus classicus in this branch of law. Hence, the Inspecting Assistant Commissioner, whose power was affected by the Amendment Act, would continue to have the jurisdiction in matters which were then pending before him, since the Amendment Act of 1970 neither in express words nor by implication has indicated that the jurisdiction of the Inspecting Assistant Commissioner even in pending matters, that is, matters which were already referred to him, was to be affected. Since there is no such clear indication nor necessary implication affecting the jurisdiction of the Inspecting Assistant Commissioner in pending matters it follows that the jurisdiction which the Inspecting Assistant Commissioner had under the unamended section 274 continued in the instant case end, therefore, he had jurisdiction to dispose of the penalty proceedings against the assessee-firm. Under these circumstances the conclusion of the Tribunal that the Inspecting Assistant Commissioner had no jurisdiction to pass the order of penalty in the instant case in not correct according to law.

7. It may be pointed out that since the Tribunal came to the conclusion that the order of penalty could not be sustained, it has not gone into the merits of the case and it decided the question only on the preliminary points of limitation and the jurisdiction of the Inspecting Assistant Commissioner. On both these points the Tribunal was in error in the view it took and neither of the two alternatives which the Tribunal felt applied in the present case is applicable or is valid in law. Under these circumstances, we answer the questions referred to us as follow :

Question No. (1). - In the affirmative.

Question No. (2). - In the affirmative.

Question No. (3). - In the negative.

8. The matter will now go back before the Tribunal for deciding on the merits. The assessee will pay the costs of this reference to the Commissioner.