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Hirjibhai Tribhuwandas v. Income-Tax Officer, Rajnandgaon And Another
Factual and Procedural Background
This is a Letters Patent Appeal against the order of Kotval J. in Miscellaneous Petition No. 466 of 1955. The appellant carried on business in the State of Nandgaon during the years 1946-47, 1947-48 and 1948-49. The Indian Income-tax Act, 1922, was applicable to Nandgaon State because it had been extended to that State in 1942. The appellant was assessed to income-tax for the three years by separate orders of the Income-tax Officer dated 29-12-1947, 9-1-1948 and 29-3-1949 and the tax was realised by State authorities.
The State of Nandgaon merged with Madhya Pradesh effective 1 August 1949 by the State Merger (Governor's Provinces) Order, 1949, and by the Taxation Laws (Extension to Merged States and Amendment) Act, 1949 (referred to in the opinion as the Taxation Laws Act). The Indian Income-tax Act was extended to Nandgaon with effect from 1 April 1949. In 1954 and 1955 the Income-tax Officer issued three separate notices to the appellant under Section 34 of the Indian Income-tax Act for re-assessment of tax for the same accounting years.
The appellant (petitioner) challenged the validity of those re-assessment notices under Article 226 of the Constitution. Kotval J. heard the petition and dismissed it. This appeal (Letters Patent Appeal) challenges that dismissal.
Legal Issues Presented
- Whether the term "assessment" in Section 7 of the Taxation Laws Act (the saving clause) must be interpreted to include "re-assessment", thereby permitting issuance of notices under Section 34 for the accounting periods in question.
- Whether notices purportedly issued under "Section 34 of the Indian Income-tax Act" are invalid because Section 34 was not in force in the accounting periods cited, or whether such a citation is a slip that does not affect the validity of the notices.
Arguments of the Parties
Appellant's Arguments
- The exception (saving clause) in Section 7 of the Taxation Laws Act did not cover "re-assessment"; hence notices for re-assessment could not validly be issued under Section 34 of the Indian Income-tax Act.
- The notices are invalid because they purport to be issued under "Section 34 of the Indian Income-tax Act" which, it was argued, was not in force for the accounting periods stated; the proper citation should have been to the Section 34 as applied to Nandgaon State.
Respondent / State (as presented in the opinion)
- The learned Single Judge (Kotval J.) rejected the appellant's contention by holding that the term "assessment" in Section 7 of the Taxation Laws Act should be interpreted broadly to include proceedings of re-assessment; accordingly, notices under Section 34 were permissible.
- The omission in the citation (not referring specifically to Section 34 as applied to Nandgaon State) was characterized in the opinion as a slip which did not affect the substance or merits of the case and could be corrected by the court.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Rajendra Nath v. Commissioner of Income-tax, AIR 1834 PC 30 (A) | Held that the Indian Income-tax Act imposed no limit of time within which assessment under sections 23 and 29 had to be made; service of notice of demand could be made at any time. | Referred to establish that original assessments could be final once demand issued, and to frame the broader discussion on when assessments may be reopened. |
| Commissioner of Income-tax, Bombay Presidency and Aden v. Khemchand Ramdas, AIR 1938 PC 175 (B) | Clarified Rajendra Nath: once a final assessment is arrived at it cannot be re-opened except under circumstances detailed in Sections 34 and 35 of the Act. | Used to show that re-opening assessments is permitted only under statutory provisions such as Sections 34 and 35, emphasizing the special role of those sections. |
| City Tobacco Mart v. Income-tax Officer, AIR 1955 Mys 49 (C) | Held that an assessment became complete when the Income-tax Officer determined the amount due and issued a notice of demand under Section 23; powers of revision or rectification did not render the assessment proceedings incomplete. | Noted by the court as an authority adopting a narrower view that the process of "assessment" did not cover "re-assessment"; this view was considered and contrasted with other authorities. |
| Lakshmana Shenoy v. Income-tax Officer, AIR 1954 Trav-C 137 (D) | Held that the words "levy, assessment and collection" include all processes by which tax is ascertained, demanded and realised; accordingly "re-assessment" falls within that phraseology. | Relied upon by the court for the proposition that "re-assessment" is encompassed by the expression "assessment" when used in the saving clause context. |
| Firm L. Hazari Mal v. Income-tax Officer, Ambala, AIR 1957 Punj 5 (E) | Followed the view in Lakshmana Shenoy that re-assessment is within the ambit of "levy, assessment and collection". | Noted as another authority supporting the broader interpretation that includes re-assessment within "assessment" for saving/continuity purposes. |
| Bhailal Amin & Sons Ltd. v. R.P. Dalai, AIR 1953 Bom 441 (F) | Cited in support of the court's view, though the opinion notes that the case appears to have involved a different question. | Referred to but the court observed that the case concerned a different issue and therefore its relevance was limited. |
| 1955-27 ITR 572 FN (AIR 1954 Trav-Co 137) | Expresses the proposition that "levy, assessment and collection" include all processes by which tax is ascertained, demanded and realised and that "re-assessment" comes within that phraseology. | Quoted by the court in support of the ordinary meaning of "assessment" including "re-assessment". |
Court's Reasoning and Analysis
The court's analysis proceeded in several linked steps, each grounded in the language of the saving clause and the statutory schemes before and after merger:
- Plain meaning of "assessment": The court held that the ordinary, natural meaning of "assessment" is "to fix the amount of tax due or to determine such amount." Because re-assessment serves the same purpose (fixing/determining tax), the court concluded that "re-assessment" falls within the ordinary meaning of "assessment" as used in Section 7 of the Taxation Laws Act.
- Distinction in the Income-tax Act does not narrow the saving clause: The opinion acknowledged that the Income-tax Act itself sometimes uses the two terms "assessment" and "re-assessment" (for example, Section 36 contemplates different cases such as no assessment at all versus an assessment at too low a rate), but held that the existence of those distinct uses in one statute does not require a restricted reading of "assessment" in the saving clause. The terms are not mutually exclusive.
- Purpose of the saving clause: The court interpreted the saving clause as intended to preserve the State law for the "levy, assessment or collection" of income-tax in respect of chargeable accounting periods prior to 31 March 1948, whether or not proceedings were pending on the date of merger. It rejected an interpretation that would preserve only part of the assessment process (e.g., original assessment but not re-assessment), observing such a result would be anomalous.
- On pending proceedings: The court rejected reliance on the report of the Indian States Finance Inquiry Committee as a basis for narrowly construing the saving to pending proceedings only. It observed that if restriction to pending proceedings had been intended this could have been stated expressly in the saving clause.
- Re-enactment/continuity principle: The court applied a principle of statutory construction (citing Sutherland) that when a statute is re-enacted in substantially the same terms the unchanged provisions are treated as continuously in force. Because Section 34 was identical in the Income-tax Act as applied to Nandgaon and in the subsequently applied Indian Income-tax Act, Section 34 should be deemed continuously in force for relevant purposes.
- Citation slip: With respect to the formal objection that the notices were described simply as under "Section 34 of the Indian Income-tax Act" rather than "Section 34 as applied to Nandgaon State", the court considered this to be a slip in form. The court reasoned that when an authority has power to perform an act, an incorrect statement of the enabling power should not vitiate the act; the court may refer to the appropriate power and the omission did not affect the merits.
On the strength of the foregoing, the court found no substance in the appellant's contentions and upheld the view that re-assessment notices under Section 34 were permissible in the circumstances described.
Holding and Implications
HOLDING: The Letters Patent Appeal is DISMISSED WITH COSTS. The court upheld the view that the term "assessment" in Section 7 of the Taxation Laws Act includes "re-assessment" and that the re-assessment notices issued under Section 34 (properly understood as Section 34 as applied to Nandgaon State) were not invalid for the reasons advanced by the appellant.
Implications:
- The direct effect is that the appellant's challenge under Article 226 to the re-assessment notices was unsuccessful; the notices issued under Section 34 were held to be valid (the defective citation was a slip not affecting substance).
- The court applied ordinary-meaning statutory construction and continuity/re-enactment principles to conclude that the saving clause preserves the processes necessary for levy, assessment and collection, including re-assessment, for the relevant accounting periods.
- No broader implications are expressly discussed in the opinion beyond the effect on these parties and the interpretive conclusions reached about the saving clause; the opinion does not state that it is laying down a new precedent beyond its reasoning in this appeal.
1. This is a Letters Patent Appeal against the order of Kotval J., in Miscellaneous Petition No. 466 of 1955.
2. The appellant used to carry on business in the State of Nandgaon and did so during the years 1946-47, 1947-48 and 1948-49. At that time, the provisions of the Indian Income-tax Act, 1922, were applicable to the Nandgaon State on account of the extension of that Act to the State in the year 1942. The appellant was assessed to income-tax for the above years under the said act by three separate orders of the Income-tax Officer, dated respectively 29-12-1947, 9-1-1948 and 29-3-1949, and the tax was duly realised by the State authorities.
The State merged with Madhya Pradesh with effect from ]st August 1949 by the State Merger (Governors' Provinces) Order, 1849, end by the Taxation Laws (Extension to Merged States and Amendment) Act 1949 (hereinafter referred to in the judgment as the Taxation Laws Act) the Indian Income-tax Act was extended to the State of Nandgaon with effect from 1st April 1949. In the years 1954 and 1955, the Income-tax Officer issued three separate notices to the appellant under Section 34 of the Indian Income-tax Act for re-assessment of tax for the very same -years.
The petitioner contested the validity of the notices under Article 226 of the Constitution. His petition was heard by Kotval J., and was dismissed.
previous year for the purposes of assessment under the Indian Income-tax Act, 1922, as extended to that State by Section 3, or, as the case may be, the levy, assessment and collection of business profits tax for any chargeable accounting period ending on or before the 31st day of March, 1948 and for any purposes connected with such levy, assessment or collection."
The contention of the appellant was that the exception did not cover the case of 're-assessment' and accordingly notices for re-assessment could not be issued under Section 34 of the Indian Income-tax Act, This contention was repelled by the learned Single Judge on the view that the term 'assessment' in Section 7 of the Taxation Laws Act, should be interpreted widely to cover the proceedings of re-assessment.
4. In Rajendra Nath v. Commissioner of Income-tax, AIR 1834 PC 30 (A), their Lordships of the Privy Council held that the Indian Income-tax Act nowhere imposed any limit of time within which the assessment under the provisions of sections 23 and 29 was to be made, and that the service of notice of demand could, therefore, be made at any time. This decision was explained by their Lordships in Commissioner of Income-tax, Bombay Presidency and Aden v. Khemchand Ramdas, AIR 1938 PC 175 (B), in which it was observed that when once a final assessment is arrived at, it cannot be re-opened except in the circumstances detailed in Sections 34 and 35 of the Act.
In this connection, their Lordships of the Mysore High Court observed in City Tobacco Mart v. Income-tax Officer, AIR 1955 Mys 49 (C) :
"The view taken by the Privy Council was that an assessment became complete when the Income-tax Officer determined the amount due by the assessee and issued a notice of demand under Section 23. The mere fact that the Commissioner of Income-tax could exercise powers of revision under Section 33 of the Income-tax Act or that the Income-tax Officer at any time within one year from the date of any demand, may make rectifications, and correct mistakes in his assessment did not make the assessment under Section 23 of the Act anytheless final or the proceedings under the Income-tax Act incomplete."
5. The interpretation of Section 13 of the Finance Act, 1950, which is in terms of Section 7 of the Taxation Laws Act, came up for consideration before a Pull Bench of the Travancore-Cochin High Court in Lakshmana Shenoy v. Income tax Officer, AIR 1954 Trav-C 137 (D). In that case, their Lordships held that the words "levy, assessment and collection" in Section 13 of the Finance Act, include all the processes by which the tax is ascertained, demanded and realised and accordingly, re-assessment, being, one of these processes, comes within the ambit of the phraseology employed.
This view was not followed by the Mysore High Court in City Tobacco Mart v. Income-tax Officer, (C) (supra), in which it was held that the process of assessment did not cover the proceedings for re-assessment. The view held by the Mysore High Court was not followed in Firm L. Hazari Mal v. Income-tax Officer, Ambala, AIR 1957 Punj 5 (E). in which the same view as that of the Travancore-Cochin High Court in the case of Lakshmana Sheony v. Income-tax Officer, (D) (supra) was taken.
Their Lordships also referred to Bhailal Amin & Sons Ltd. v. R.P. Dalai, AIR 1953 Bom 441 (F), in support of their view, but that case appears to have involved another question and not the one under consideration.
8. . It is contended on behalf of the appellant that the words "assessment'' and "re-assessment" have been used in different senses in the Income-tax Act itself and therefore, the use of the word "assessment" alone in Section 7 of the Taxation Laws Act should be interpreted to exclude the process of "re-assessment."
7. In its normal sense "to assess" means "to fix the amount of tax due or to determine such amount". The process of re-assessment is to the same purpose and would thus be included in the connotation of the term "assessment.'' It has been observed by their Lordships in 1955-27 ITR 572 FN : (AIR 1954 Trav-Co 137) (D) :
"The words "levy, assessment and collection" as we understand them include all the processes by which the tax is ascertained, demanded and realised and "re-assessment", being one of those processes comes within the ambit of the phraseology employed."
8. It will be observed that Section 36 of the Income-tax Act contemplates four different cases in which the power to assess escaped income has been given. Where there has been no assessment at all, the term "assessment" would be appropriate and where there was an assessment at too low a rate or with unjustified exemptions, the term "re-assessment'' would be appropriate. It was thus necessary to resort to the use of two different terms to cover with clarity the different cases dealt with in that section. This does not mean that the terms should be treated as mutually exclusive.
9. In interpreting the term "assessment" as used in Section 7 of the Taxation Laws Act, it should be giver, its plain meaning. It should not be understood in any restricted or special sense in which it may have been used in the Indian Income-tax Act in a particular context.
10. The object of the saving clause is obviously to make the provisions of the State Law available in all cases in which the income was assessed or was assessable according to that law before the elate of merger. It is difficult to see why only a part of the process of assessment should be saved and the other part repealed. According to the interpretation sought to be put by the appellant, a curious result would follow inasmuch as Section 34 would be partly saved and partly repealed.
It would be available for enabling assessment to be made in cases in which no assessment had been made at all; but it would not be available for enabling assessment to be made in cases where there had been an assessment at too low a rate or with unjustified exemptions. This could not obviously be the intention.
11. In the Mysore case cited above, reliance was placed on the report of the Indian States Finance Inquiry Committee which had recommended saving only to secure legal continuity of pending proceedings
" and to ensure finality and validity of completed proceedings under the preexisting State legislator."However, we are not quite clear how these observations can be used to interpret the plain words of the statute.
Even if the term "assessment" is interpreted to exclude "reassessment", the exclusion of reassessment in all cases does not follow from the saving clause in question. Proceedings for assessment in cases where there was no assessment at all, will still be open under Section 34 Income-tax Act and those will not be "pending proceedings."
It seems to us that the saving is for the purpose of levy, assessment or collection of income-tax in respect of chargeable accounting periods prior to the 31st day of March 1948, irrespective of the fact whether any proceedings were pending or not on that date.
If the saving was to be restricted only to pending proceedings, this could have been easily said in express words in the saving clause itself.
12. The meaning of the word "assessment" as used in Section 7 of the Taxation Laws Act is unambiguous if that Act is read by itself. It is an important rule of construction of statutes that where the language is plain & unambiguous, there is no need to look for anything else for interpretation. The words used must first be given their ordinary, natural and popular meaning. If this is done it will be clear that "assessment" must include "re-assessment."
13. There is yet another reason why this should be so. In the case of repeal and re-enactment at the same time, it should be held that there was no repeal at all. It has been observed in Sutherland's Statutory Construction in paragraph 2035 as follows :
"......... When, however, an existing statute is re-enacted, by a later statute in substantially the same terms, a repeal by implication is effectuated only of those provisions which are omitted from re-enactment, while the unchanged provisions which are reiterated in the new enactment are construed, as having been continuously in force."
In this case, the Income-tax Act as applied to the Nandgaon State, was repealed but was replaced by the Indian Income-tax Act. Section 34 in both these Acts are identical. According to the principle quoted above. Section 34 should be deemed to be continuously in force.
15. It has next been argued that the notices issued by the Income-tax Officer are invalid because they purport to be under Section 34 of the Indian Income-tax Act which was not in force in the accounting periods stated. It appears that the Indian Income-tax Act was extended bodily to the Nandgaon State in 1942. The correct citation would, therefore, be "Section 34 of the Indian Income-tax Act as applied to Nandgaon State."
The omission of the words underlined (here into " ") is a slip and should net affect the merits of the case. When en authority has power to perform an act and the power "under which the act is being performed has been wrongly stated it is the duty of the Court to refer to the appropriate power. We do not think there is any substance in this contention of" the appellant.
16. The appeal is accordingly dismissed with costs.
"Section 34 of the Indian Income-tax ActAlert