Income-Tax Officer v. Calcutta Discount Co. Ltd.

The Judgment of the Court was delivered by

Chakravartti, C.J:— This appeal involves a short and simple point, but it was sought to be presented as if it involved an intricate question of interpretation of statutes and also a profound question of constitutional law. In my opinion, whatever the true answer to the question may be, there is no room for either intricacy or profoundly.

2. The facts are equally simple. The respondent is a private limited company, incorporated under the Indian Companies Act and having its registered office at 8, Clive Row, Calcutta. For the assessment years 1942–1943, 1943–1944 and 1944–1945, assessments were made on it by three several orders, dated respectively 26-1-1944, 12-2-1944 and 15-2-1945. Those assessments were made, under Section 23(3) of the Income-tax Act, upon returns being furnished and the amounts of tax demanded were duly paid. Subsequently, on 28-3-1951, three separate notices were issued to the respondent, calling upon it to submit fresh returns for the three accounting years, relative to the said three assessment years, with a view to re-assessments of the income. Those notices were issued under Section 34 of the Income-tax Act, as amended by the Income-tax and Business Profits Tax (Amendment) Act, (48 of 1948) on the ground that the Income-tax Officer concerned had reason to believe that the income for each of the years had been under-assessed. After some correspondence, the respondent furnished returns in compliance with the notices on 13-8-1951, doing so under protest, and it returned, as we were informed from the Bar, the same income for each respective year as on the previous occasion. Thereafter, on 18-9-1951, the respondent moved this Court under Article 226 of the Constitution of India for various reliefs, among them being appropriate writs on the first appellant, directing him to forbear from proceeding further on the basis of the notices issued and to certify and return to this Court the relevant records in order that the proceedings might be quashed. Bose, J., before whom the application was moved, issued a very comprehensive Rule and by an order made on 26-3-1952, he made the Rule absolute to the extent that he prohibited the appellants from proceeding with the assessment proceedings, pursuant to the notices issued on 28-3-1951. The second appellant, the Union of India, had been added as a party in the course of the proceedings on its own application.

3. It appears that two points were urged before Bose J. It was contended that the proceedings were bad in law, inasmuch as the conditions precedent required to give jurisdiction to an Income-tax Officer to proceed under S. 34 were absent in the present case and, secondly, that the section, as amended in 1948, could not at all apply to assessments for the three years in question, as the amendment had no retrospective operation. The learned Judge overruled the first contention, but accepted the second. Thereafter the present appeal was preferred.

4. The principal question to be decided in the appeal is thus whether the present Section 34 of the Income-tax Act, is retrospective in operation, but it will be convenient to dispose of first a contention faintly urged by the respondent against the learned Judge's conclusion on the first point. It was argued that he was wrong in holding that no writ of prohibition or certiorari could lie in the present case on the ground that the conditions precedent to the issue of notices under S. 34 did not exist.

5. The point, to my mind an exceedingly thin one, arises in the following way. Sub-section (1) of S. 34, so far as is material, provides that if the Income-tax Officer “has reason to believe” that by reason of the omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for the assessment for any year, the income, profits or gains of that year have been under-assessed, he may issue a notice containing all or any of the requirements which may be included in a notice under S. 22(2), calling for a return from the assessee.

6. The facts in the present case, according to an affidavit of the officer who issued the notices, are that in each of the years in question there were profits arising from sales of shares, but those profits were left out of the assessments on a representation made on behalf of the respondent company that it was not a dealer in shares. The profits were, therefore, not taxed, as the assessing officer was led to believe that the dealings in shares were casual transactions and in the nature of mere changes of investments. During the assessments for subsequent years, however, it transpired that the respondent company had in fact been carrying on business in shares and thereupon the income from that source was included in the assessments. The Income-tax Officer, dealing with the subsequent assessments, was in those circumstances led to believe that the income for the three prior years in question had been under-assessed and he recorded the reasons for his belief in the following words:

“At the time of the original assessment, the then I.T.O merely accepted the company's version that the sale of shares were casual transactions and were in the nature of mere change of investments. Now the results of the company's trading from year to year show that the company has really been systematically carrying on a trade in the sale of investments. As such, the company has failed to disclose the true intention behind the sale of shares and as such S. 34(1)(a) is attracted.”

7. On those facts, Bose J. held that the case was not one where there were no materials before the Income-tax Officer on which he could form the belief. He pointed out that all that was necessary under S. 34 to give jurisdiction to the Income-tax Officer to proceed, was his personal satisfaction as to the existence of the conditions precedent required to attract the section and therefore the Legislature had given him power to determine for himself the existence of the preliminary facts on which the further exercise of his jurisdiction depended. The learned Judge added that though the reasons for the Income-tax Officer's belief might be examinable by a court of law, they were examine able only for the purpose of seeing whether there was some prima facie ground for the belief, but the court could not interfere by means of a writ on its own view of the grounds that they were not sufficient. If the Income-tax officer came to a wrong decision, the assessee's remedy lay in the proceedings provided for by the Income-tax Act itself.

8. These propositions of the learned Judge were not questioned by Mr. Mitra who appeared on behalf of the respondent company, but what he contended was that, on his own showing, the Income-tax officer had no reason to believe that the respondent had failed to disclose fully and truly all material facts necessary for its assessment for the three years in question. It was argued that the facts were all known at the time of the original assessments and all that was being said now was only that the respondent “had failed to disclose the true intention, behind the sale of the shares”. It was therefore not a case of non-disclosure of facts on the part of the assessee and, on the part of the Income-tax Officer, it was only a case of change of opinion as to known facts.

9. I am clearly of opinion that this contention of Mr. Mitra is not one that can be entertained in a proceeding under Article 226 of the Constitution. I am aware that the terms of that Article are very wide and also that the writs which the Article contemplates are not limited to writs of the precise scope and character of the English writs. But however wide the language of the Article and however various the writs or orders it contemplates, I find myself unable to hold that the width of language has the effect of releasing the Article altogether from the limitations which attach in England to interference by means of high prerogative writs. There are certain obvious directions in which more extended power can legitimately be exercised under the Article, but a valuation of the grounds on which a particular order was made in a pending proceeding, governed by its own special law and provided with its own special remedies, does not appear to me to be one of such directions.

10. Even on the merits, Mr. Mitra's contention does not appear to me to have any substance in it. The expression that the respondent had failed to disclose “the true intention behind the sale of shares” may lack directions, but that deficiency of language is not sufficient to enable the respondent to contend, in view of the circumstances alleged, that no failure to disclose facts was being complained of. On the facts as stated by the Income-tax Officer, it is clear that there had been a failure to disclose the fact that the respondent was a dealer in shares and what the Income-tax Officer meant by the language used by him was that the respondent had not disclosed that, the sale of shares had been of the nature of a trading sale, made in pursuance of an intention to make a business profit and not of the nature of a change of investment, made in pursuance of an intention to put certain capital assets into another form. If that be so, it is equally clear that the Income-tax Officer who, by the way was a successor to the officers who had made the original assessments, was not merely changing his opinion as to facts previously known, but was taking notice of a new fact. The contention of the respondent must therefore be overruled.

11. Turning now to the contentions of the appellants, it was argued that in view of the terms of the new S. 34 and the provisions of the amending Act, no question of retrospective operation arose at all and, secondly, that, in any event, S. 34 was concerned with mere procedure in which no one had a vested right and therefore there was no bar to the applicability of the new section to past assessments.

12. Before dealing with these contentions, it is necessary to set out the relevant portions of S. 34, as they stood before the amendment and as they stand now and also to state in what form the amendment was made.

13. The Indian Income-tax Act, 11 of 1922, has recognised from the beginning that, for various reasons, the income of an assessee during a particular year may escape assessment altogether or that an assessment made of it may not bring the whole of the assessable income under tax or may not charge the proper amount of tax on it and it has therefore contained in S. 34 a provision for making assessments beyond the normal time or re-opening assessments. The section has been amended from time to time and immediately before the amending Act of 1948, the relevant portions of it stood as follows:

“34(1) If in consequence of definite information which has come into his possession, the Income-tax Officer discovers that income, profits or gains chargeable to income-tax have escaped assessment in any year or have been under-assessed, or have been assessed at too low a rate, or have been the subject of excessive relief under this Act, the Income-tax Officer may, in any case in which he has reason to believe that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof, at any time within eight years, and in any other case at any time within four years of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-s. (2) of S. 22 and may proceed to assess or re-assess such income, profits or gains, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice under that sub-section:

Provided that the tax shall be charged at the rate at which it would have been charged, had the income, profits or gains not escaped assessment or full assessment, as the case may be.

(2) No order of assessment under S. 23 or of assessment or re-assessment under sub-s. (1) of this section, shall be made after the expiry, in any case to which cl. (c) of sub-s. (1) of S. 28 applies, of eight years, and in any other case, of four years from the end of the year in which the income, profits or gains were first assessable.”

14. By Ss. 2 to 12 of Act 48 of 1948, fairly extensive amendments of the Income-tax were made. Section 34 as dealt with by S. 8 and what that section did was not to make alterations in the old section, but to replace it completely by a new section of a self-contained character. The relevant portions of the substituted section are as follows:

“34(1) If—

(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under S. 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or

(b) notwithstanding that there has been no omission or failure as mentioned in cl. (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax has escaped assessment for any year, or have been under assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under cl. (a) at any time within eight years and in cases falling under Clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-s. (2) of S. 22 and may proceed to assess or re-assess such income, profits or gains or compute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice under that sub-section:

Provided that—

(ii) the tax shall be chargeable at the rate at which it would have been charged, had the income, profits or gains not escaped assessment or full assessment, as the case may be;

3. No order of assessment under S. 23 to which Cl. (c) of sub-s. (1) of S. 28 applies or of assessment or re-assessment in cases falling within cl. (a) of sub-s. (1) of this section shall be made after the expiry of eight years, and no order of assessment or re-assessment in any other case shall be made after the expiry of four years, from the end of the year in which the income, profits, or gains were first assessable:

Provided that where a notice under sub-s. (1) has been issued within the time therein limited, the assessment or re-assessment to be made in pursuance of such notice may be made before the expiry of one year from date of the service of the notice, even if such period exceeds the period of eight years or four years, as the case may be.”

15. As already stated, amendments of the Income-tax Act were made by Ss. 2 to 12 of Act 48 of 1948. That Act itself came into force on 8-9-1948 but, by S. 1(2), it prescribed the dates on which certain of its provisions and certain amendments made to the Income-tax Act were to come into force. Section 1(2) is in the following terms:

“Sections 3 to 12 shall be deemed to have come into force on 30-3-1948 and the amendment made in the Income-tax Act, 1922 (11 of 1922) by S. 2 shall be deemed to be operative so as to apply in relation to all assessments subsequent to the assessment for the year ending on 31-3-1948.”

16. The first argument of the appellants was that by reason of the provisions of Section 1(2) of the amending Act, the new S. 34 was to be deemed to have been on the statute-book on 30-3-1948 and if it was there on that date, then by its own express language it applied, on and from that date, to all assessment years, in cases coming under Cl. (a), from the end of which eight years had not elapsed on the date of the issue of the notice. There was no question of any retrospective operation. The earliest of the three assessment, years involved in the present case ended on 31-3-1943. Eight years from that date would expire on 31-3-1951. The notice given on 28-3-1951 under the new section which was already in force and expressly authorised the issue of a notice within eight years, was thus clearly within time and the proceedings based on the notice were perfectly valid. The notices issued in respect of the two subsequent years were even more clearly within time.

17. Unfortunately, Bose J. did not deal with this aspect of the matter at all, but proceeded on the well-known general lines. All that he held was that S. 34 did not relate to procedure, pure and simple, but affected a substantive right, viz., the protection given to the assessee not to be subjected to re-assessment except only under certain conditions and within a certain time and that, therefore, it could not have retrospective operation unless the statute indicated that it was intended to have such effect. The learned Judge seems to have thought that by providing by S. 1(2) that the-new S. 34 was to be deemed to have come into force on 30-3-1948, the amending Act had itself stated to what extent the new section was intended to operate retrospectively. He concluded as follows:

“The amendment is expressly made retrospective, so far as S. 34 is concerned, from 30-3-1948. It has no further retrospective operation.”

18. The learned Judge did not state expressly what he meant by “further retrospective operation”, but since he held all the three notices and the proceedings pursuant thereto to be without jurisdiction, his meaning apparently was that the new section could not apply to any assessment year ended prior to 30-3-1948 or to any income-tax affair of any assessee prior to that date.

19. In my opinion, the reasoning of the learned Judge does not dispose of the matter and if I may say so with respect, it does not seem to me to explore and examine fully the meaning of the new section being brought into force on 30-3-1948. It is true that the section must be taken to have come into force on that date and not on any earlier date. The date on which it came into operation cannot be pushed back further. But given that the section came into operation on 30-3-1948, in deciding in what manner it would operate, it is pertinent to enquire first what the section itself says. The learned Judge has observed that “the amendment is expressly made retrospective so far as S. 34 is concerned from 30-3-1948”, but that really is not the retrospective operation of S. 34, but of the amending Act which, though it became law only on 8-9-1948, operates, so far as it substituted a, new section for the old S. 34, with effect from 80-3-1948. The effect of Section 8 of the amending Act so operating with respect to S. 34 was that it placed the section on the statute-book as on 30-3-1948 and made it a part of the Income-tax Act on and from that date. But what was the effect of such introduction of the new S. 34 on the Income-tax Act itself? The effect was that the Income-tax Act, speaking on and from 30-3-1548 with the new section as a part of it, began to say in the words of the section itself, and therefore expressly by its own words, that in cases coming under cl. 1(a) of the section, the Income-tax Officer would be entitled to issue a notice within eight years from the end of any assessment year in respect of which proceedings or further proceedings seemed to be called for. One has only to read the Act, standing so amended on 30-3-1948 and one finds at once a clear provision that all assessment years, ending within eight years from that date, are covered by it, as also all assessment years ending within eight years from subsequent dates. It is immaterial that some of them may be years ended before 30-3-1948. The question is not one of retrospective operation at all but a question of what the section says and how far the section, having come into force on 30-3-1948, extends by its own words. Had the section merely created a right in favour of the Income-tax Officer to issue a notice in respect of escaped or under-assessed income and not included a provision as to the period up to which computed from the end of the assessment year concerned, the right could be exercised, a question might conceivably arise as to whether it was intended to be retrospective in operation, but in view of its clear terms, the section gives rise to no such question.

20. The plain effect of the substitution of the new S. 34 with effect from 30-3-1948 is that from that date the Income-tax Act is to be read as including the new section as a part thereof and if it is to be so read, the further effect of the express language of the section is that so far as cases coning within cl. (a) of sub-s. (1) are concerned, all assessment years ending within eight years from 30-3-1948 and from subsequent dates, are within its purview and it will apply to them, provided the notice contemplated is given within such eight years. What is not within the purview of the section is an assessment year which ended before eight years from 30-3-1948. All the three assessment years in question in the present case ended within eight years from 30-3-1948 and also within eight years from the date of the notices and accordingly the proceedings taken are authorised by the section and are valid.

21. It was, however, contended by Mr. Mitra that another principle had to be taken into account and that principle was that no section of the Income-tax Act could apply to the assessment of income in any year unless the Finance Act for that year made it applicable to such income. It was picturesquely urged that, by itself, the Income-tax Act was an inert machine which could move only if the power of movement was imparted to it by a Finance Act and, therefore, where the Act was not applied to the income assessable in a particular year by the relevant Finance Act, such income remained unaffected by its provisions. As a corollary to that provision, it was argued that what the annual Finance Act made applicable to, the income assessable in the year, was the Income-tax Act, as it stood at the date of the Finance Act and therefore amendments of the Income-tax Act, subsequently made, could not apply to such income, as there would be no Finance Act to make them applicable. Accordingly it was contended that the fact that the new S. 34, coming into force on 30-3-1948, authorised the issue of a notice in respect of assessment years ended within eight years was not sufficient to make the section practically operative in respect of years ended prior to 30-3-1948, the date on which the Indian Finance Act of 1948 also came into force, because the Income-tax Act applied to the earlier years by the relevant Finance Acts was an Act without-the new section. According to Mr. Mitra, the Income-tax Act, as including the new S. 34, was first applied by the Finance Act of 1948 to the assessment year 1948–1949 and it was only to that and subsequent assessment years that the new section could apply by the force of the successive Finance Acts. He added that the choice of 30-3-1948 as the date on which the amendment would come into force was a pointer to the intention of the Legislature that the new section would have effect only from the assessment year 1948–1949, for that was the date on which the Finance Act of 1948 also came into force.

22. Ingenious as the argument is, it is not, in my opinion, sound. Mr. Mitra founded his contention on the decision of the Privy Council in — ‘Maharajah of Pithapuram v. Commr. of Income-tax, Madras’, AIR 1945 PC 89 (A), and reinforced it by a reference to the decision of the Allahabad High Court in — ‘In re Misrimal Gulabchand of Beawar’, AIR 1950 All 270 (B), and that of the Nagpur High Court in — ‘Niranjanlal Ramballabh v. Commr. of Income-tax, Madhya Prardesh and Bhopal’, AIR 1953 Nag 185 (C). The root authority Mr. Mitra relies on was the decision of the Privy Council. In that case the assessee had made some revocable settlements in favour of his daughters in 1933 and up to the assessment year 1938–1939, the income from the settled properties was assessed separately in the hands of the daughters under the provisions of the Income-tax Act, as they stood then, though the assessments were actually made on the assessee as their trustee. Then, by an amendment which came into force on 1-4-1939, Section 16(1)(c) of the Income-tax Act, was amended so as to make the income from assets, revocably transferred, the income of the transferor and under that amended provision, the income from the subjects of the settlements during the year 1938–1939 was included in the 1939–1940 assessment of the assessee's own total income. It was argued that the words of the amendment which were “shall be deemed” had no retrospective effect and could not apply to the income of a year which had ended on 31-3-1939, but the Privy Council repelled that contention and held that the Finance Act of 1939, which made assessable in the 1939–1940 assessment the total income of the previous year, “as determined in accordance with the provisions of the Indian Income-tax Act, 1922”, could refer only to the Act as it stood at the date of the Finance Act, and as the former Act, as it then stood, already contained the amended provision, the income from the settled properties had rightly been added to the other income of the assessee. In the course of their judgment, their Lordships pointed out that, under the Indian Act, it was not the income of the assessment year but that of the previous year which was taxed and they added the following observation:

“In the second place, it should be remembered that the Indian Income-tax Act, 1922, as amended from time to time, forms a Code, which has no operative effect except so far as it is rendered applicable for the recovery of tax imposed for a particular fiscal year by a Finance Act.”

23. In my opinion, it is perfectly clear that the annual Finance Act has no concern with the procedural provisions of the Income-tax Act and their Lordships of the Privy Council did not say that it had. They spoke only of “tax imposed for a particular fiscal year by a Finance Act”. Section 3 of the Income-tax Act, provides that “where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year”. The Central Act may be any Act, such, for example, as the Government Trading Taxation Act, but as a rule it is the annual Finance Act. The point to be noticed, however, is that the Central Act is referred to in S. 3 only for the purposes of the rate, but the rate fixed by the Central Act is to be charged in accordance with the provisions of the Income-tax Act and subject thereto.

24. In other words, while the rate is to be taken from the Central Act, it is the Income-tax Act which governs the procedure according to which, the persons on whom and the circumstances in which the assessment is to be made. The provisions relating to these matters do not require to be applied to any particular assessment year by the relevant Finance Act. It is true that, at times, the Finance Act itself amends the Income-tax Act in these respects, but even in such cases the new provisions take effect as parts of the Income-tax Act and by their own force. In the passage quoted above, their Lordships were referring to the “tax imposed by the Finance Act” and they were doing so for the obvious reason that it is the Finance Act which fixes the rate of tax and makes an actual amount of tax chargeable. It is true that they also said that, by itself, the Income-tax Act had no operative effect, but it appears to me that they were not laying down a general proposition regarding the whole of the Act but only saying that the Act was not operative of its own force to impose any tax. That statement of the law can be easily understood, because the Income-tax Act deals only with the principles, the methods and the subjects of taxation.

25. A little reflection will show that what their Lordships were doing in the passage relied on was that they were repelling the argument that the income being of a year which ended on 31-3-1939 up to which it was not chargeable as the income of the assessee, the amendment which came into force on 1-4-1939 could not make it so chargeable. In repelling that argument they were saying that as, under the Indian Act, the income of a particular year was assessed in the next year, how the Income-tax Act stood in the previous year was immaterial, since by itself it imposed no tax, and since by the time when a tax came to be imposed on the previous year's income by the Finance Act of the next year, the Income-tax Act had come to include the particular income in the income of the assessee, the tax came necessarily to be attached to it as a part of his total income. That is also the meaning of the other passage in which it was said that the tax was chargeable at the rates fixed by the Finance Act on the total income computed in accordance with the provisions of the Income-tax Act, as it stood at the date when the Finance Act came into force. Their Lordships laid down no general proposition that the Income-tax Act could not operate at all till a Finance Act made it applicable to a particular assessment, year and that even the procedural sections required to be so applied.

26. The two Indian decisions may be shortly disposed of. In the Allahabad case it was held that the first proviso to Section 24(1) of the Income-tax Act, which provided that loss incurred in an Indian State could not be set off against income accrued in British India and which came into force on 12-4-1944, did not apply to an assessment for the year 1944–1945, as the Act, as it stood on 1-4-1944, did not contain the proviso. The learned Judges applied the principle of the Privy Council decision and did so conversely by excluding the operation of a provision which was not a part of the Income-tax Act at the beginning of the assessment year but was added subsequently after the date of the Finance Act. Whether they were right or wrong in doing so, the case is distinguishable, as it was concerned with a new provision which increased the taxable quantum of the income.

27. In the Nagpur case it was held that S. 33B, which empowered the Commissioner to revise orders passed by the Income-tax Officer and which also was introduced by Act 48 of 1948, was retrospective only to the extent of its applicability to the assessment year 1948–1949 and did not authorise the Commissioner to set aside an order for the registration of a firm for the assessment year 1944–1945. The learned Judges expressly repelled the contention that the provision being procedural was retrospective. They also relied on the decision of the Privy Council and in so far as they took the view that decision required them to hold that even the procedural provisions of the Income-tax Act depended for their effectiveness on being brought into operation by a Finance Act, I find myself, with respect, unable to agree.

28. As regards the other reason given by them, viz., that Section 1(2) of the amending Act which brought S. 33B into force only with effect from 30-3-1948, itself showed that the retrospective operation of the latter section was limited to the assessment year 1948–1949. I have already pointed out that S. 1(2) is really concerned with the retrospective operation of the provisions of the amending Act and not of the amendments themselves which must be judged by their own language and the place assigned to them in the Income-tax Act. The distinction appears clearly from the terms of S. 1(2) which, on the one hand, speaks of “Ss. 3 to 12” of the amending Act coming into force on a particular date, and on the other hand, of the “amendment made by S. 2” applying to certain assessments. The effect of S. 1(2) on S. 33B is to make it a part of the Income-tax Act on and from 30-3-1948 and since the section is in no way limited as to the assessment years to which the order revised must relate and only provides by sub-s. 2(b) that no order shall be made under it after the expiry of two years from the date of the order sought to be revised, I am unable to see why, after the section had come into force, the Commissioner could not revise any order, so long as he did not go beyond the time-limit prescribed. Mr. Meyer contended that the learned Judges had applied the latter part of S. 1(2) to a case governed by the first part. I do not consider that criticism justified. They did proceed on the date, 30-3-1948 and not on the expression “all assessments subsequent to the assessments for the year ending on 31-3-1948”, but they attributed to the specification of the former date with respect to Sections 3 to 12 of the amending Act an effect which, in my view, is not justified. That date may have been chosen, because, first Sections 11 and 12 of the amending Act introduced certain new provisions which affected tax relief and were intended to apply to the assessment year 1948–1949 which they could not do without the assistance of the Finance Act of 1948, and secondly, because S. 34 was intended to reach out to the assessment year 1939–1940, the first of the War years.

29. In my opinion, the cases cited by Mr. Mitra do not establish that the principle invoked by him is an obstacle to the plain meaning of the express language of S. 34 being given effect to in the case of assessment years prior to the year 1948–1949. Section 34 does not impose any new charge, nor does it fix any new rate, but on the other hand provides expressly by Proviso (ii) to sub-s. (1) that the tax shall be chargeable at the rate at which it would have been charged, had the income not escaped assessment or full assessment. That rate has already been brought into force by the Finance Act of the relevant year and does not require to be brought into force again in order that it may be imposed on the income or further income which the assessment or re-assessment proceedings may bring to light. Mr. Mitra's argument would seem to imply that in order that the undisclosed income of any year prior to the amendment might be brought under charge under the provisions of the amended section, the relevant Finance Act also would require to be amended so as to apply to the Income-tax Act, as retrospectively amended — but that argument seems to me to involve a confusion of thought. When the Finance Act of a particular past year, say 1943, was passed, it at once made tax, computed at the rates it fixed, chargeable on the total income of every assessee assessable in that year, whether or not such income was disclosed or fully diclosed. Section 34 only helps to bring the undisclosed part of the income to light, a part to which a charge of tax has already been attached by the relevant Finance Act, and in order that the part, so traced out, may be brought under assessment at the rate already fixed, the operative force of the Finance Act does not require to be invoked and applied again. The old Finance Act covered the whole of the true assessable income and is sufficient to attach a tax to the whole of it. So long, therefore, as an amendment of the Income-tax Act does not make a new category of income chargeable to tax with retrospective effect, no further aid from the Finance Act is necessary in order to make a retrospective amendment effective. In my opinion, the considerations urged by Mr. Mitra do not displace the plain meaning of S. 34 and cannot avail against its applying to assessment years, prior to its date. The first contention of the appellants, in my view, is right and the section applies directly to all the three assessment years without presenting any problem of construction.

30. In the view I have taken of S. 34, no question of retrospective operation, as a question of interpretation, arises in the present case. The term, ‘retrospective operation’, as has been observed, is ambiguous, because it is applied both to the fact that a particular enactment operates from before its date or so as to affect pre-existing rights and to the problem of construction which may be presented by an enactment as to whether it extends backwards or not. When an enactment extends backwards by its own clear language, it operates retrospectively, but presents no problem of construction. There can be no doubt that the Legislature is supreme and it can, if it chooses, legislate so as to after rights with effect from a prior date. It is only when the intention of the Legislature does not lie on the surface that a question of interpretation arises and, in such a case, in deciding whether the enactment concerned is intended to operate retrospectively, certain well-known principles are followed. The present case does not belong to that type, because the effect of the manner in which S. 34 was incorporated in the Income-tax Act and of the words in which the section is expressed, is clear.

31. But the case was argued at great length by Mr. Mitra as if it involved a question of interpretation as to whether the new S. 34 was retroactive or not and he cited a multitude of cases. I do not propose to discuss them, because not one of them was concerned with a provision of the present character. For the general principles, one does not require, I venture to think, to refer to decide cases at this time of the day. In deference to the argument of Mr. Mitra, I shall test it by those principles on the assumption that a question of interpretation does arise, though in my view none arises.

32. Mr. Mitra was concerned to make out that the new S. 34, if applied to assessment years prior to 1948–1949, would affect vested rights. Assuming it would, the short answer to Mr. Mitra's argument is that vested rights can be affected by a new enactment operating retrospectively if it contains express words or exhibits a necessary intendment to that effect, as S. 34 clearly does. It is, however, pertinent to enquire what the vested rights in the present case are. Mr. Meyer contended that there were no vested rights at all, because the subject-matter of S. 34 was mere procedure. In support of his contention he referred to the observation of the Judicial Committee in — ‘Commr. of Income-tax, Bengal v. Mahaliram Ramjidas’, AIR 1940 PC 124 at p. 126 (D) that the section “deals merely with the machinery of assessment” and to that of Hanworth, M.R in — “W.H Cockerline & Co. v. Commrs. of mland Reveune’, (1932) 16 Tax Cas 1 at p. 19 (E), quoting Lord Dunedin and Sargant, L.J, that an assessment only quantifies the tax-charge and the “provisions as to assessment and so on are machinery only”. It seems to me, however, that to dispose of the question as to S. 34 affecting substantive Tights merely by saying that the section is concerned with procedure, is to over-simplify the problem. A rule of procedure can affect substantive rights as, for example, a rule of limitation which takes away a right of suit which was still available under the previous law or enlarges the time for bringing a suit which had become barred. ‘Gopeshwar Pal v. Jiban Chandra’, AIR 1914 Cal 806 (F). The subject-matter of S. 34 being essentially a rule of limitation, the matter requires a little more careful scrutiny.

33. But since S. 34 had a predecessor which prescribed the same limits of time for initiation of proceedings, more or less in the same circumstances, it would ‘prima facie’ appear that by the new section no pre-existing rights are adversely affected. It is important to remember that the section imposes no new burden of tax and indeed creates no liability at all. Where there is an assessable income, the liability to tax has already attached to it under the charging sections of the Act; its measure has also been determined under the provisions of the relevant Finance Act, although it may not have been computed or fully computed. Section 34 only authorises an enquiry with a view to verifying whether there was an assessable income which has escaped assessment or has not been fully assessed and it also authorises an assessment or re-assessment if the enquiry results in an affirmative finding. From one point of view, vested right claimed in such circumstances would seem to be a right not to pay the tax legally due or a right to retain one's concealments which, in the words of an English case, is a right worthy of little respect and indeed not a right at all. It is therefore necessary to see whether any right can be found when the position is looked at from any other point of view.

34. As I have already pointed out, the section introduced by Act 48 of 1948 is not a new provision altogether, but a variant of an old provision which it replaced. In my opinion, so far at least initiation of proceedings is concerned, there is no substantial difference between the two from the point of view of the assessee's rights. The new section authorises, as the old section did, initiation of proceedings within eight years from the end of an assessment year or, in cases of an innocent escape or under-assessment of income, within four years. So far there is no difference. The basis for the initiation of proceedings is also the same, viz., escape of income from assessment or under-assessment, whether as to the quantum of the income or as to the rate, or allowance of excessive relief. There is an apparent difference in that, under the old section, there had to be a discovery of the basis on definite information, whereas under the new section it is sufficient if there is reason to believe its existence. This difference, however, is to a certain extent neutralised, because in providing when the Income-tax officer can start proceedings within eight years, the old section says that he can do so when, according to him, the assessee has “concealed the particulars of his income or deliberately furnished inaccurate particulars thereof”, while the new section says that he can do so when, according to him, the escape or under-assessment has been due to the omission or failure of the assessee “to disclose fully and truly all material facts necessary for his assessment” — which seems to me to be practically the same — and both sections use the expression “has reason to believe”. Another apparent difference that the new section mentions omission or failure to make a return as one of the causes of non-assessment or under-assessment is no difference at all, because it is not the absence of a return which gives the Income-tax officer jurisdiction to proceed, but the resultant non-assessment or under-assessment which was a ground for proceeding under the old section as well. The only real difference seems to me to be that whereas the old section allowed the same time for the initiation and the completion of proceedings, the new section allows one further year for the completion.

35. But even assuming that the differences between the two sections are real, I am unable to hold that the new section invades any vested rights. I do not exclude vested rights merely on the ground that the sections concern procedure in which no vested right can be claimed, but I do so on the ground that no affection of any right is at all involved. It is true that the mere fact that the Income-tax officer initiates proceedings under S. 34 does not mean or prove that non-assessment or under-assessment has in fact occurred, but the fact that the assessee may be subjected to some undeserved harassment by a proceeding under the new section, although no income has escaped assessment or full assessment, can be no ground for saying that any right is for the first time being affected. Under the old section as well, the Income-tax officer could proceed on his own view of a possibility that income might have escaped assessment or might have been under-assessed, although it was called ‘discovery’; and since the time-limits for so proceeding were the same, the new section affects no rights previously unaffected. Assuming that the restrictions on the Income-tax officer's power to proceed under the section have been slackned by the new section, even then it cannot be said that any right of the assessee has been affected, because to be proceeded against under certain preliminary conditions rather than others, when the matter for which one is proceeded against is the same, is not a right. Nor is the enlargement of time for the completion of an assessment a violation of any right, for, if a man is liable to be proceeded against, he cannot say that he has right to be proceeded against within a certain time or not at all. Just as a man may have right to take a proceeding, but has no right to be allowed to take it upto a certain time, so has no man, liable to be proceeded against, a right to the initiation or completion of any proceeding against him being limited to any particular period. Provided that the right or liability is not itself affected, the time for asserting the right or enforcing the liability may always be enlarged or abridged. It is true that if time is enlarged by a new enactment, but at the date when the enactment comes into force, no proceeding can any longer be commenced in a particular case under the previous law, the new enactment will not apply to such a case, — ‘Khondkar Mahammad v. Chandra Kumar’, AIR 1930 Cal 34 (G), but no such situation has been caused here. Time has not been enlarged at all. On the day the new section came into force and on any day thereafter, proceedings in respect of the same assessment years could be initiated under the old section, if it had remained in operation, as under the new section.

36. Bose, J. referred to a number of changes brought about by a new section which, according to him, affected substantive rights of assessees and he proceeded to hold that the section could not be taken as intended to operate retrospectively in the absence of some indication of such intention which he did not find. He thought that, on the other hand, a contrary intention was indicated by the fact that the section had been brought into force retrospectively with effect from 30-3-1943. According to the learned Judge, that date set the limit of time beyond which the retrospective operation of the section could not go. With great respect, it appears to me that none of the matters referred to by the learned Judge is a matter of substantive right at all. It must be remembered that the section does not make any income taxable under the Act for the first time, nor does it enlarge the quantum of income taxable. It creates no new liability to tax, nor authorises the Revenue to bring under assessment any category of income which was formerly exempt from taxation. It is concerned only with the time and the methods of the enquiry as to whether all the income, already liable to assessment, has in fact been assessed. The learned Judge mentioned the “protection given to the assessee not to be subjected to re-assessment except only under certain conditions and within a certain time” as a substantive Tight. As to time, none has a vested right in a period of limitation and a change of the period which does not altogether take away a right of action subsisting at the date of change or revive a right, then already barred under the old law, can always be made and the period applicable thereafter will be the new period, whether enlarged or abridged. Besides, the period has not in fact been enlarged in the present case. Nor can there be a vested right in the conditions in accordance with which a right enforceable against a person will be enforced, so long as the right itself, which, in this case, is the right to the tax imposed by the Act, is not enlarged by the change in the conditions. The change of discovery on definite information into reason to believe is not such a change; The learned Judge also says that the new section introduced a new ground, viz., failure to file a return, for invoking the jurisdiction to assess or reassess, but as I have already pointed out, the section does not make such failure a ground for proceeding under it, but mentions it only as one of the causes of re-assessment or under-assessment which is the circumstance that gives jurisdiction to proceed. The enlargement of the period within which the proceedings must be concluded does not also affect any substantive right for the same reasons as apply to enlargement or abridgement of the period for the initiation of proceedings, so long as the result is not to extinguish an existing right or revive a dead one. As regards the intention manifested by the fact that the section was brought into force retrospectively on 30-3-1948, I have already explained that the intention appearing from that fact is only the intention as to how far the relevant section of the amending Act, i.e, S. 8, will be retrospective, but how far or if at all, S. 31, on being placed on the statute-book retrospectively with effect from 30-3-1948, will itself operate retrospectively, is a further question. The answer to that question is furnished by the contents of the section itself and the language in which it is expressed.

37. For the reasons given above, I am of opinion that even if a question of construction be assumed to be involved, there is no bar in any vested right to the new section being construed as operating retrospectively. Even if there be any vested right, the words of the section are sufficiently clear to indicate the Legislature's intention to affect it. How untenable the assessee's contention's, will appear if its implications are analysed. If the contention be correct, the Legislature enacted a new section in 1948 to operate forwards from the assessment year 1948–1949, leaving the earlier four or eight years in respect of which proceedings could be initiated under the old section, wholly unprovided for or leaving them to the very doubtful charge of the repealed section, operating along with Section 6(e) of the General Clauses Act. I find no compelling reason to adopt so fanciful a construction.

38. Mr. Mitra also raised a point of constitutional law which, I confess, I found it extremely difficult to appreciate. He contended that since-India became a Dominion only on 15-8-1947 and was a Dominion when Act 48 of 1948 was enacted, it could have no concern with or interest in the pre-1947 income of any assessee, because the tax on such income belonged to the outgoing British Indian Government and with respect to it the Dominion of India could not legislate. Whether Mr. Mitra intended to say that an Act of the Dominion of India could not, as a matter of law, apply to the pre-1947 income of any Indian citizen or whether his meaning was that since the unassessed tax of the period prior to 15-8-1947 did not belong to the Dominion of India, the Dominion must be taken to have not intended to legislate for such tax by Act 48 of 1948, was not very clear. I invited Mr. Mitra to give the steps of his reasoning, but beyond saying that the pre-1947 revenue belonged to the British Power, though it may have left it to the Dominion of India under a treaty, he did not supply any further reasons. Asked where the treaty was to be found, he referred to the Indian Independence Act. He referred also to the Tax-Agreement between India and Pakistan and submitted that the pre-1947 tax, due from assessees resident in what was now India, belonged to Pakistan as well, for which the Dominion of India could not alone legislate.

39. I confess I am altogether unable to follow that argument and since, unfortunately, Mr. Mitra threw no further light on it, it remains to me obscure. I should have thought that by and under the Indian Independence Act, India became a practically sovereign power with respect to the territories allotted to her and she acquired full and unfettered legislative authority over her subjects and their affairs, whether in the past or in the present or in the future. It also appears to me that no agreement between the two States of India and Pakistan as to the division of the pre-partition assets can have anything to do with the powers of legislation of the two States within their respective territories, even if such legislation relates to the realisation of pre-partition liabilities of the subjects. Again, as to the argument about the British Indian Government being the real owner of the pre-partition revenues of the country, I am wholly unable to agree that it is correct, but even assuming it is, I cannot see how an enactment which does not impose any new charge but is aimed at merely collecting the charge already incurred under the old law can conflict with the British Government's ownership of the revenue. Lastly, I would add that if India had no concern with the pre-1947 revenue and no power to take any proceeding with respect to the same, as Mr. Mitra contended, it is difficult to understand what she would have to do if the old S. 34 continued to remain on the statute-book or whether that section also would have become a dead-letter with respect to the pre-1947 years. Speaking for myself, I am unable to and any substance in Mr. Mitra's argument and unable to see what practical bearing it has on the question as to whether the new section does or does not, as a part of the municipal law of India, operate retrospectively.

40. A point was taken by Mr. Meyer that the present case was altogether outside the scope of Article 226.

41. In view of the conclusion I have arrived at on the merits, I would prefer to reserve that question for decision on a future occasion.

42. On a consideration of Section 34 of the Income-tax Act, as introduced by Act 48 of 1948, I am, of opinion that the view taken of it by Bose J. was not right. The appeal is accordingly allowed, the judgment and the order of Bose J. are set aside and the respondent's application dismissed with costs here and below.

43. Certified for two Counsel.

44. A.K Sakkar, J.:— I agree.

A/R.G.D

45. Appeal allowed.