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M.L Vasudeva Murthy And Sons v. Joint Commissioner Of Agricultural Income-Tax
Summary of Opinion
Factual and Procedural Background
These writ petitions challenge notices issued under Section 35 of the Karnataka Agricultural Income-tax Act, 1957 by the respondent. The notices relate to assessment years corresponding to periods prior to the accounting year ending 31-3-1982. The petitioners' principal complaint is that the Joint Commissioner could not exercise revisional power in respect of assessment years before the previous year ending 31-3-1982 because the office and power of the Joint Commissioner were introduced by Karnataka Act 14 of 1983, which declared its provisions to apply to assessments for previous years ending on or after 31-3-1982. Subsequently, Karnataka Act 23 of 1985 amended Section 35 to insert (a) a four-year limitation period for exercise of revisional power and (b) an Explanation declaring that the Joint Commissioner’s revisional power is exercisable in respect of orders passed by subordinate authorities “before or after the conferment of revisional power on him.” The petitioners attacked this enlargement as conflicting with Section 2 of Karnataka Act 14 of 1983 and sought relief by way of writ petitions. The Court considered the legislative history, relevant statutory provisions, and authorities cited by counsel. The petitions were ultimately dismissed; the Court directed that petitioners may show cause to the notices within six weeks and may raise the limitation plea before the Joint Commissioner, who must decide questions in accordance with law.
Legal Issues Presented
- Whether the Explanation inserted into Section 35 by Karnataka Act 23 of 1985 empowers the Joint Commissioner to exercise revisional power in respect of assessment orders passed before the conferment of revisional power on him, including orders relating to assessment years prior to the previous year ending 31-3-1982.
- Whether Section 2 of Karnataka Act 14 of 1983 (which states that that Act's provisions apply to assessments of agricultural income derived during previous years ending on or after 31-3-1982) restricts the Joint Commissioner’s revisional jurisdiction so that it cannot be applied to assessment orders relating to periods before 31-3-1982.
- Whether the four-year limitation inserted into Section 35 by Karnataka Act 23 of 1985 (sub-section (2) substituted to provide a four-year bar) prevents exercise of revisional power in the present cases, and whether limitation is a matter for the authority to decide on facts.
Arguments of the Parties
Petitioners' Arguments
- The office of Joint Commissioner and the grant of revisional power to that office were created by Karnataka Act 14 of 1983, and Section 2 of that Act declared that its provisions apply to assessments for previous years ending on or after 31-3-1982; therefore the Joint Commissioner could not exercise revisional power in respect of assessment years prior to 31-3-1982.
- Karnataka Act 23 of 1985, by inserting an Explanation into Section 35 declaring that the Joint Commissioner may revise orders passed before conferment of power on him, conflicts with the non-obstante provision of Section 2 of the earlier Amendment Act (Act 14 of 1983) and must be confined so as to harmonise with Section 2 of Act 14 of 1983.
- The Explanation in Act 23 of 1985 should be read down in light of precedent (the Bombay High Court decision in RITZ Ltd. v. Union of India) to avoid retrospective enlargement of jurisdiction beyond what the earlier amendment explicitly allowed.
- In the particular cases before the Court, the notices issued by the Joint Commissioner were, according to petitioners, beyond the four-year period prescribed by Section 35(2), so the limitation bar operates in their favour.
The opinion does not contain a detailed account of the respondent's separate legal arguments in the same level of detail as the petitioners' contentions.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| RITZ Ltd. v. Union of India, 184 ITR 599 (Bombay High Court) | Construction of an Explanation inserted into a revisional provision (Section 263(1) of the Income-tax Act) — principle that an Explanation/amendment should not be read as having retrospective effect beyond the scope of the main Explanation and an amendment cannot be given retrospective operation earlier than the date the main Explanation came into force. | The Court considered the case relied upon by petitioners but distinguished it: the factual and statutory setting here differs because Section 2 of Act 14 of 1983 is a general provision as to several amendments, whereas the Explanation in Section 35 (Act 23 of 1985) is a special provision relating to the revisional power of the Joint Commissioner. The Court held that RITZ does not compel reading down the Explanation in the present statutory context. |
| South India Corporation (P) Ltd. v. Secretary, Board of Revenue, Trivandrum, AIR 1964 SC 207 | Principle that a special provision should be given effect to within its scope and ordinarily excludes the operation of a general provision on the same subject-matter. | The Court invoked this principle to hold that the Explanation (a special provision concerning the scope of revisional power) must be given full effect and therefore is not to be truncated by the general provision in Section 2 of Act 14 of 1983. |
| In re Neydon's case | Mischief rule of statutory interpretation: to ascertain the real meaning by looking at the law before the Act, the mischief, the remedy appointed, and the reason of the remedy. | The Court applied this interpretive approach to determine the object and scope of the Explanation inserted into Section 35, concluding that the Explanation was intended to remove administrative difficulty and clarify the Joint Commissioner's competence to revise orders subject to the limitation period. |
Court's Reasoning and Analysis
The Court proceeded by analysing the statutory history and the competing provisions. It reviewed:
- The original Section 35 of the principal Act (Karnataka Agricultural Income-tax Act, 1957) which confers revisional power on the Commissioner to call for and revise subordinate authorities' orders where they are erroneous and prejudicial to revenue.
- Karnataka Act 14 of 1983 (the earlier Amendment Act), which amended the principal Act to create the post of Joint Commissioner and inserted the Joint Commissioner into the revisional machinery (Section 35), and which declared (by Section 2) that the provisions of that Amendment Act shall apply to assessments of agricultural income derived during previous years ending on or after 31-3-1982.
- Karnataka Act 23 of 1985, which (a) substituted sub-section (2) of Section 35 to introduce a four-year bar on exercising the revisional power, and (b) inserted an Explanation declaring that, subject to the four-year limitation, the Joint Commissioner’s revisional power shall be exercisable in respect of orders passed by subordinate authorities before or after the conferment of revisional power on him, and that this Explanation shall be deemed always to have been inserted.
The petitioners relied on the non-obstante provision in Section 2 of the earlier Amendment Act and on the Bombay High Court decision in RITZ Ltd. to argue that the Explanation in Act 23 of 1985 could not be read as extending revisional power to assessment orders relating to years prior to 31-3-1982. The Court examined that authorities' ratio and distinguished it on facts and statutory scheme: RITZ concerned an Explanation that expanded the kinds of orders eligible for revision under Section 263(1) of the Income-tax Act and the Court there held that an amendment should not be given retrospective effect beyond the date the Explanation itself was inserted. By contrast, in the present case the Court found that Section 2 of Act 14 of 1983 is a general provision clarifying the scope of multiple amendments made by that Act, while the Explanation inserted by Act 23 of 1985 is a specific provision dealing directly with the scope of the Joint Commissioner's revisional power under Section 35.
Applying the legal principle that a special provision normally excludes the operation of a general provision on the same subject-matter (as explained in South India Corporation), and having regard to the mischief the Explanation sought to remedy (administrative difficulty and uncertainty about the Joint Commissioner's competence to revise older orders), the Court concluded that the Explanation must be given full effect. The only restriction on the Joint Commissioner’s power is the statutory four-year limitation in Section 35(2) (and other existing conditions in Section 35(1)). The Court invoked the In re Neydon's case approach to statutory interpretation to focus on the object and scope of the Explanation and accepted that the Explanation was intended to remove the practical difficulties in administration.
On the question of limitation in the specific cases, the Court observed that limitation is essentially a question of factual investigation and procedural law; petitioners could raise the limitation bar before the Joint Commissioner. The Court directed petitioners to show cause within six weeks and left the Joint Commissioner to consider limitation and other points in accordance with law.
Holding and Implications
Holding: The writ petitions are dismissed. The Court gave full effect to the Explanation inserted into Section 35 by Karnataka Act 23 of 1985 and held that, subject to the limitation in Section 35(2) and the conditions of Section 35(1), the Joint Commissioner may exercise revisional power in respect of orders passed by subordinate authorities either before or after the conferment of revisional power on him.
Implications:
- Direct effect on parties: The notices issued by the Joint Commissioner stand; petitioners were permitted to show cause to the notices within six weeks and may raise the limitation plea and other points before the Joint Commissioner, who must decide in accordance with law. The Court refused to quash the notices at this stage.
- Scope of revisional power: The Explanation (Act 23 of 1985) is given full effect so that the Joint Commissioner can revise orders passed before or after conferment, subject only to the four-year bar in Section 35(2) and other statutory conditions in Section 35(1).
- On precedent and statutory interpretation: The Court applied the principle that a specific statutory provision (the Explanation to Section 35) governs over a general provision (Section 2 of Act 14 of 1983) in respect of the same subject-matter and used established rules of interpretation (including In re Neydon's case) to ascertain legislative intent. The Court distinguished the decision relied upon by petitioners (RITZ Ltd.) on the facts and statutory context.
- Costs: No costs were awarded.
- Broader precedent: The opinion does not state that it is setting a new or novel precedent beyond the interpretation applied to the statutes in these petitions; it focuses on the direct statutory construction and the disposition of these writ petitions.
1. In these writ petitions certain notices under Section 35 of the Karnataka Agricultural Income-tax Act, 1957 (‘the Act’ for short) issued by the respondent in respect of the assessment years relatable to the periods prior to the accounting year ending 31-3-1982, are primarily challenged. The petitioners contend that the power of the Joint Commissioner to take any action to revise an order of assessment, cannot be exercised in respect of any assessment year which pertains to a period prior to the accounting year ending 31-3-1982, because the Joint Commissioner was empowered to act under Section 35 only by virtue of the Karnataka Act 14 of 1983 (for short ‘the Earlier Amendment Act’). By Karnataka Act 23 of 1985, this power of the Joint Commissioner is alleged to have been enlarged, by empowering him to revise the assessment orders of earlier periods and this purported enlargement is attacked as conflicting with Section 2 of the earlier Amendment Act. Therefore this enlargement of the jurisdiction will have to be confined to the period stated in Karnataka Act 14 of 1983, according to the petitioners.
2. The Act was originally enacted in the year 1957 and it levies tax on the agricultural income, for which purpose, apart from the charging provision several machinery sections were also enacted. Section 35 empowered the Commissioner to call for and examine the record of any proceeding under the Act and if he considers that any order passed therein by any authority subordinate to him is erroneous in so far as it is prejudicial to the interests of the revenue, after complying the principles of natural justice, the Commissioner may pass such order thereon as the circumstances of the case may justify. The purpose of this provision is quite clear and is similar to the revisional powers created under the provisions of the Income-tax Act, Sales Tax Act, etc., to safeguard the interest of the revenue. There was no such officer called “a Joint Commissioner” in the original Act. Obviously, with the increase of the work load, the State thought of having another officer who can also exercise the power of revision under Section 35. Apart from this there were several other matters, required to be provided under the Act by appropriate amendments. Therefore several provisions of the Act were amended by Karnataka Act 14 of 1983. This Earlier Amendment Act declared that it shall be deemed to have come into force on 1st December, 1982 (even-though the Act was published in the Karnataka Gazette on 5-5-1983 and received the assent of the Governor on 3-5-1983). Section 2 of this Act, which is relevant, reads:
“Application of the Act — Notwithstanding anything contained in the Karnataka Agricultural Income-tax Act, 1957 (Karnataka Act 22 of 1957) (hereinafter referred to as the principal Act), the provisions of this Act shall apply to the assessment of agricultural income derived during any previous year ending on or after the Thirty-first day of March, 1982.”
3. As per Section 3 of this Amendment Act clause (ml) was introduced in Section 2(1) of the principal Act defining the term “Joint Commissioner” as the person appointed to be so under Section 17 of the Act. Section 17 of the Act is in Chapter III providing for the Income-tax Authorities and this section enumerates the several authorities for the purpose of the Act. The earlier amendment Act also amended Section 17 of the principal Act to include the Joint Commissioner of Agricultural Income-tax (for short ‘Joint Commissioner’) along with other authorities stated therein. Section 16 of this amendment Act amended Section 35 of the principal Act to insert the words “or Joint Commissioner” after the word “Commissioner” wherever the said word is found. From this, the power under Section 35 could be exercised either by the Commissioner or by the Joint Commissioner to call for the relevant record and revise the same as provided in the said Section. It is not necessary to refer to other several amendments made by this amendment Act at present. There is no dispute that by virtue of this amendment, the Joint Commissioner could exercise the power of revision under Section 35; however because of Section 2 of this amendment Act it was doubtful whether the Joint Commissioner could exercise his power under Section 35 in respect of any order of assessment pertaining to any accounting period (previous year), prior to the previous year ending on or after 31-3-1982. In otherwords there has been no dispute that the Joint Commissioner was competent to exercise the revisional power under Section 35 in respect of any assessment order pertaining to the agricultural income derived during any previous year ending on or after 31-3-1982. But in the case of assessment orders relating to any period earlier to the previous year ending on 31-3-1982, but made subsequent to the date of the earlier amendment Act, it was doubtful as to whether the Joint Commissioner could exercise his power of revision regarding these assessment orders. Hence the legislature added explanation to Section 35 by enacting Section 8 in Karnataka Act 23 of 1985. This Karnataka Act 23 of 1985 is deemed to have come into force on 1st day of April, 1985. Section 8 which is relevant, reads thus:
“Amendment of Section 35.— In Section 35 of the principal Act,—
(1) for sub-section (2), the following shall be substituted, namely:—
“(2) No power shall be exercisable under sub-section (1) after the expiry of four years from the date of order sought to be revised”.
(2) after sub-section (3), the following explanation shall be and shall be deemed always to have been inserted, namely:—
“Explanation:— For the removal of doubts, it is hereby declared that subject to the provisions of sub-section (2), the revisional power conferred on the Joint Commissioner by sub-section (1) shall be exercisable in respect of an order passed under this Act, by any authority subordinate to him before or after the conferment of revisional power on him.””
4. While the first part provides for the period of limitation to exercise the revisional power, subsequent part has inserted the ‘Explanation’ as part of Section 35. A literal reading of this explanation conveys the idea that power under Section 35 could be exercised by the Joint Commissioner in respect of an order of assessment, etc., whether such an order was passed before or after the conferment of the revisional power on him; thus, it means that the Joint Commissioner in competent to revise any order even though the order is related to the assessment of agricultural income derived during any previous year earlier to the previous year ending on 31-3-1982.
5. The above meaning conveyed by the Explanation added to Section 35 is seriously challenged by the petitioners and the question is whether the ambit of this explanation should be restricted as operating only in respect of the period commencing with the date stated in Section 2 of the earlier Amendment Act.
6. There is no dispute that the State Legislature is competent to create a forum whereby the assessment orders can be revised and for this purpose appropriate authorities can be designated and appointed. There is also no dispute that the State Legislature was competent to create the Office of Joint Commissioner who can exercise the same power as the Commissioner. The only question is the period from which such a power could be exercised. Mr. Ramabhadran, learned counsel for the petitioners, contended that the office of the Joint Commissioner was contemplated by the Karnataka Act 14 of 1983 and the Joint Commissioner was given the power under Section 35 by the said amendment Act and while doing so the said amendment Act clearly stated that the provisions of the amendment Act shall apply to the assessment of agricultural income derived during any previous year ending on or after 31-3-1982 and Section 2 further declared that its provisions would prevail notwithstanding anything contained in the principal Act. According to Sri Ramabhadran, the explanation added by Karnataka Act 23 of 1985 is in conflict with Section 2 of the earlier Amendment Act (Act 14 of 1983) and therefore to harmonise the two provisions the ‘Explanation’ should be confined as empowering the Joint Commissioner to revise the orders which satisfies Section 2 of the earlier Amendment Act. The learned counsel pointed out that Section 2 of the earlier Amendment Act was not modified or amended while enacting the subsequent Act No. 23 of 1985 and the non-obstante provision in Section 2 of the earlier Amendment Act is still in force.
7. The learned counsel cited a decision of the Bombay High Court in RITZ Ltd. v. Union of India, 184 ITR 599. The Court, there, was concerned with clause (c) to Section 263(1) of the Income Tax Act. The main Section 263(1) of the Income Tax Act is almost similar to Section 35 of the Act which vests in the Commissioner a similar revisional power. Since the category of orders that could be the subject matter of revision by the Commissioner required enumeration by amplifying the scope of Section 263(1), an Explanation was added in the year 1984 with effect from 1-10-1984, Clauses (a) and (b) of the Explanation declared that a few other kinds of orders were also liable to be revised apart from those covered by the main Section 263(1). Some of the judicial pronouncements expressed the view that the order covered by Section 263(1) did not include any order which has been the subject matter of any appeal and the doctrine of merger was applied to such orders. To remove this difficulty clause (c) was inserted in the Explanation with effect from 1-6-1988. Again here, there was some doubt as to whether the order referred in clause (c) was an order which became the subject matter of an appeal after 1-6-1988 (the day from which the clause came into force). Therefore width of clause (c) was widened and certain words were inserted in it stating that the order of the Assessing Officer, whether had been the subject matter of any appeal filed on or before or after 1-6-1988, could be subjected to the power of the Commissioner under Section 263(1) and further words were also inserted to state that such a power shall be deemed always to have existed. The Revenue contended that, because of this deeming words in clause (c), the Commissioner's power extended even in respect of the earlier orders which were subject matter of any appeal prior to the insertion of the Explanation and thus, the revenue gave a literal meaning to the words conveying the deeming provision in it. The High Court pointed out that the scope of the power under clause (c) cannot be wider than the power sought to be extended by the main Explanation and since the Explanation was only with effect from 1-10-1984, the clause (c) also should be read as operative and applicable to the cases arising thereafter. At page 603, the learned Judge observed thus:
“… The question, however, is if that was so, why did the Legislature not stop at that and went further to say that the insertion of these words though factually in 1989 was with retrospective effect from June 1, 1988, the date on and from which Explanation (c) itself was inserted by the Finance Act, 1988. In may Judgment, Explanation (c) requires to be construed harmoniously. The insertion of the words at two places as well as the fact that the insertion is made retrospective from the date on which the Explanation itself was inserted can all be given proper meaning if it is held that these words are to be read in the Explanation right from the date the Explanation itself was inserted. Thus, only in cases where action under Section 263 is taken after June 1, 1988, the merger of the assessment order will be treated as confined to the issues actually considered and decided in appeal in terms of Explanation (c). In my Judgment, the construction placed herein is based on sound logic, namely, irrespective of the language in which the amending provisions are couched, the amendment cannot be retrospective with effect from a date earlier to the date on which the provisions sought to be amended itself was brought on the statute book.”
8. From the last sentence of the above passage it is clear that clause (c) of the Explanation being part of the Explanation, cannot travel beyond the scope of the Explanation and that is how the Bombay High Court viewed the question raised before it. In the instant case, the provision involved is quite different. No doubt, initially, the earlier Amendment Act vested the power of revision in the Joint Commissioner and at the same time stated that the provisions of the said amendment Act shall apply to the assessment of the income derived during the year ending 31-3-1982 or thereafter. But Section 35 was subsequently amended by the Karnataka Act 23 of 1985 and a bar of limitation was brought in by substituting sub-section (2) under which the power of revision shall not be exercisable after the expiry of four years from the date of order in question. Therefore, even if the order of assessment is made in respect of a very old year, still it can be revised so long as the order is made within 4 years from the date on which revisional power is sought to be exercised. However, doubts arose about the power of the Joint Commissioner to exercise the power of revision in respect of the assessment orders pertaining to any previous year ending prior to the year 31-3-1982, referred to in Section 2 of the earlier Amendment Act. Hence the Explanation certainly empowers the Joint Commissioner to exercise the power of revision in respect of any order passed whether before or after the conferment of revisional power on him. The only restriction is the bar of limitation under sub-section (2) of Section 35 and other conditions stated in Section 35(1). Such a reading of the Explanation in question no doubt brings it in conflict with Section 2 of Karnataka Act 14/1983 and Mr. Ramabhadran, learned counsel, wants us to apply the ratio of the aforesaid decision of the Bombay High Court and to restrict the operation of the Explanation to an order of assessment of an agricultural income derived during any previous year ending on or after 31-3-1982 only. It is to be noted that Section 2 of the earlier Amendment Act is not part to the principal Act by itself. Further, under the earlier Amendment Act several provisions of the principal Act were amended and in that connection Section 2 was enacted to clarify the scope of the said amendments and the said Section 2 of the Karnataka Act 14 of 1983 is a general provision governing the various amendments made under the said Act. But the subject of revision is found in Section 35 and therefore it is a special provision governing the revisional power. The explanation now added by Section 8 of the subsequent Amendment Act (Act 23 of 1985) is a special provision as to the scope of the Joint Commissioner's power with reference to the period covered by the assessment orders. A special provision normally excludes the operation of a general provision and we are of the view that such a principle governs the instant case. In South India Corporation (P) Ltd. v. Secretary, Board of Revenue, Trivandrum, AIR 1964 SC 207 the Supreme Court had to consider as to whether Article 277 or 372 of the Constitution should govern the particular fact situation involved therein. The Supreme Court pointed that a special provision should be given effect to the extent of its scope, leaving the general provision to control cases where the special provisions does not apply.
9. In the instant case, the Explanation was added to Section 35 to remove the difficulty caused in the administration of the Act so that the Joint Commissioner also may exercise the powers vested in the Commissioner, for the purpose of Section 35. The problem posed by restricting the orders that can be the subject matter of revision by the Joint Commissioner had to be cleared and the object of this Amendment by which the Explanation was added to Section 35, was to clearly declare the competence of the Joint Commissioner to revise the orders, provided, the power is exercised within the period of limitation stated in Section 35(2). The amplitude of the power of the Joint Commissioner is subject to the provisions of Section 35(2) only. The principle enunciated in the well-known In re; Neydon's case will have to be borne in mind, in such a situation as this:
“To arrive at the real meaning, it is always necessary to get an exact conception of the aim, scope, and object of the whole Act: to consider, according to Lord Coke: 1. What was the law before the Act was pass; 2. What was the mischief or defect for which the law had not provided; 3. What remedy Parliament has appointed; and 4. The reason of the remedy.”
10. In these circumstances, we are of the view that the scope of the Explanation cannot be restricted by the application of Section 2 of the earlier Amendment Act 14 of 1983. Full effect will have to be given to the words used in the Explanation.
11. Sri Ramabhadran, further contended that in all these cases the notices issued by the Joint Commissioner were beyond the period of 4 years and therefore the bar provided under Section 35(2) operates. Petitioners have approached this Court against the notices. The plea of limitation can be raised before the authority concerned. Basically the question involves investigation of facts. It is open to the petitioners to show cause to the notices received by them within six weeks from today and the question of limitation also may be raised before the Joint Commissioner. The respondent shall consider all such questions as may be raised by the petitioners and decide the same in accordance with law subject to the observations made in these writ petitions.
12. Consequently, these writ petitions are dismissed. No costs.
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