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Ram Bhagat, Petitioner, v. The Commissioner Of Income-Tax, Punjab And Another,
Structured Summary of the Provided Opinion
Factual and Procedural Background
Messrs. Fateh Chand–Jai Ram Das of Kaithal (the "Kaithal firm"), a joint Hindu family firm, was a partner in Messrs. Ambala Flour Mills, Ambala City, with a share of four annas in the rupee. For the assessment year 1948–49 the Kaithal firm’s share was assessed at Rs. 7,499 and that assessment was finalised on 15th September 1950.
The assessment of Messrs. Ambala Flour Mills was later reopened under Section 34 of the Indian Income-tax Act, 1922 by an order dated 31st March 1958. On reassessment the share of the Kaithal firm for that year was determined at Rs. 53,843. On 6th August 1958 the Income-tax Officer issued a notice under Sub‑section (5) of Section 35 to the Kaithal firm proposing reopening of its assessment. The Kaithal firm objected that s.35(5) did not apply because its assessment had been completed on 15th September 1950. The objection was overruled by the Income-tax Officer by an order dated 16th October 1958, and a demand for Rs. 46,345 was issued (the difference in share income).
The assessee’s revision petition to the Commissioner of Income‑tax, Punjab, was dismissed by order dated 7th May 1962 without giving the assessee a hearing. The assessee then filed a writ petition under Article 226 of the Constitution, challenging the revisional/demand orders on the grounds, inter alia, that (i) there was no mistake apparent on the face of the record of the Kaithal firm’s assessment that would attract s.35(1); (ii) the notice dated 6th August 1958 was beyond the four‑year period in s.35(1); and (iii) the deeming clause in s.35(5), enacted in 1953, was not retrospective so as to affect assessments finalised before 1st April 1952.
Legal Issues Presented
- Whether Sub‑section (5) of Section 35 of the Indian Income‑tax Act, 1922 applies so as to permit rectification of the assessment of a partner whose assessment was completed before 1st April 1952 when the assessment or reassessment of the firm is completed after that date.
- Whether the Income‑tax Officer had jurisdiction to issue a notice under s.35(5) on 6th August 1958 and to pass the consequential order dated 16th October 1958, in respect of an assessment finalised on 15th September 1950.
- What is the effect of the four‑year limitation in Sub‑section (1) of Section 35 where the alleged mistake becomes apparent only from the record of another assessment (the firm’s assessment) completed after the partner’s assessment.
Arguments of the Parties
Petitioner's Arguments
- The assessment of the Kaithal firm (partner) for 1948–49 was finalised on 15th September 1950 and there was no mistake apparent on the face of that record attracting s.35(1).
- The Income‑tax Officer’s notice dated 6th August 1958 was beyond the four‑year period prescribed by s.35(1) and thus the assessment could not be rectified under s.35(1).
- The deeming provision in s.35(5) was enacted by the Income‑tax (Amendment) Act, 1953, and is not retrospective; it therefore cannot be applied to assessments of partners completed before 1st April 1952.
- Relying on the Supreme Court decision in Second Addl. Income‑tax Officer, Guntur v. Atmala Nagaraj (1962) 46 ITR 609 (SC), s.35(5) does not apply to partners whose assessments were completed before 1st April 1952.
Respondents' Arguments
- It was pointed out by learned counsel for the respondents that in Ahmedabad Manufacturing and Calico Printing Co., Ltd. v. S.G. Mehta (1963) 48 ITR 154 = AIR 1963 SC 1436 some judges had cast doubts on the correctness of Atmala Nagaraj and the earlier Habibullah decisions, suggesting possible reconsideration of those authorities.
- The respondents relied on the existence of conflicting decisions (including a Bench decision of this Court, Kundan Lal v. Income‑tax Officer, B Ward (1959) 37 ITR 337 (Punj)) that had held s.35(5) could be used to rectify partner assessments completed before 1st April 1952 in particular factual circumstances.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Second Addl. Income‑tax Officer, Guntur v. Atmala Nagaraj, (1962) 46 ITR 609 (SC) | Held that Sub‑section (5) of Section 35 was not applicable to cases where the partner's assessment was completed before 1st April 1952 even though the firm's assessment was completed after that date; a mistake apparent only from the record of the firm is not a mistake apparent from the record of the partner's assessment. | The Court regarded this Supreme Court decision as directly on point and binding on the facts of the instant case and applied its ratio to hold that s.35(5) did not authorize reopening of the Kaithal firm's assessment finalised on 15th September 1950. |
| Income‑tax Officer, V Circle, Madras v. S.K. Habibullah, (1962) 44 ITR 809 = AIR 1962 SC 918 | Established that a mistake discovered from the record of another case (e.g., the firm's record) is not a mistake apparent from the record of the assessee's own assessment; also addressed the limits of retrospective operation where vested rights are affected. | The Court relied on the principle that a mistake which becomes apparent only from another record cannot be treated as a mistake apparent from the assessee's own record; this supported the conclusion that s.35(5) could not be applied to assessments finalised before 1st April 1952. |
| Kundan Lal v. Income‑tax Officer, B Ward, Amritsar, (1959) 37 ITR 337 (Punj) | Held (in that Bench decision) that s.35(5) could be used to rectify a partner’s assessment completed in 1946 upon reassessment of the firm in 1956; also held that Clause (5) enacted in 1953 was not declaratory of pre‑existing law and must be deemed to have come into force from 1st April 1952. | The Court noted this decision as a conflicting authority but observed that the Supreme Court in Habibullah's case referred with approval only to the principle (about non‑declaratory nature and time‑limit) and that the present Court was bound by the Supreme Court authority in Atmala Nagaraj. |
| Ahmedabad Manufacturing and Calico Printing Co. Ltd. v. S.G. Mehta, (1963) 48 ITR 154 = AIR 1963 SC 1436 | Court considered Sub‑section (10) of Section 35 (not Sub‑section (5)); some Judges cast doubts on the correctness of Habibullah and Atmala decisions, but the Bench was not expressing final views on s.35(5). | The Court examined this decision and concluded that the doubts expressed there related to s.35(10) and did not constitute a definitive overruling of the Atmala/Habibullah line of authority on s.35(5). The Court therefore declined to treat Ahmedabad Manufacturing as displacing Atmala Nagaraj. |
Court's Reasoning and Analysis
The matter was referred to the Full Bench because of conflicting authorities on the point. The Court began by setting out the statutory provisions relied upon: Sub‑section (1) of Section 35 (which permits rectification of mistakes apparent from the record within four years of the order sought to be rectified) and Sub‑section (5) of Section 35 (the deeming clause which treats certain inclusions or corrections of a partner's share—discovered on assessment/re‑assessment of the firm—as rectification of a mistake apparent from the record, with the four‑year period computed from the date of the final order passed in the case of the firm).
The Court next analysed the relevant authorities. It treated Second Addl. Income‑tax Officer, Guntur v. Atmala Nagaraj (1962) as directly on all fours with the present facts and as a binding Supreme Court decision: in that case the Supreme Court had held that s.35(5) did not apply to partners whose assessments were completed before 1st April 1952, because a mistake which becomes apparent only from the record of the firm is not a mistake apparent from the partner's own record.
The Court also recalled and relied on the principle from Income‑tax Officer, V Circle, Madras v. S.K. Habibullah (1962) that a mistake discovered from the record of another case could not be treated as one apparent from the record of the assessment already finalised in the assessee's own case. The Court noted the relationship among the authorities: Kundan Lal represented a conflicting view at the High Court/Bench level, but the Supreme Court decisions (Habibullah and Atmala) set the controlling principle.
The Court examined Ahmedabad Manufacturing & Calico Printing Co. Ltd. v. S.G. Mehta (1963), where some Judges expressed doubts about Habibullah and Atmala. However, the Court observed that Ahmedabad Manufacturing dealt with Sub‑section (10) of Section 35 and that the doubts expressed were not a final adjudication on the scope of Sub‑section (5). The Bench in Ahmedabad expressly refrained from expressing a final position on s.35(5).
Having considered these authorities, and in particular the direct applicability and binding force of the Supreme Court's decision in Atmala Nagaraj, the Court concluded that the Atmala ratio is unanswerable on the facts of the present case. Accordingly, because the Kaithal firm’s assessment was finalised before 1st April 1952 (15th September 1950), the Income‑tax Officer had no jurisdiction under s.35(5) to reopen and revise that assessment on the basis of the firm’s reassessment in 1958.
Holding and Implications
Holding: The Court's final decision was to quash the impugned orders. In particular, the Court held that the enhanced assessment made by the Income‑tax Officer by order dated 16th October 1958 in pursuance of the notice under Sub‑section (5) of Section 35 was without jurisdiction and of no effect. The consequential order of the Commissioner of Income‑tax dated 7th May 1962 was also quashed by a writ of certiorari.
Direct effect on the parties: The Income‑tax Officer’s order dated 16th October 1958 and the Commissioner’s order dated 7th May 1962 were quashed; the parties were directed to bear their own costs.
Implications beyond the parties: The opinion does not undertake to set aside or overrule the Supreme Court authorities it follows; the Court expressly relied on the Supreme Court decision in Atmala Nagaraj and observed that the legal question involved was not free from difficulty. No broader new precedent was declared by this opinion beyond applying the existing Supreme Court authority to the facts before it.
End of summary — prepared strictly from the content of the provided opinion text.
1. This case has been referred to the Full Bench at the instance of my learned brother D.K. Mahajan, J. the reason being certain conflict of authorities bearing on the point involved in the case.
2. Briefly the facts are that Messrs. Fateh Chand-Jai Ram Das of Kaithal, a joint Hindu family firm (to be referred to as the Kaithal firm) was a partner in the firm Messrs. Ambala Flour Mills, Ambala City, the former's share being four annas in the rupee. For the assessment year 1948-49 the aforesaid share of the Kaithal firm was assessed at Rs. 7,499 and this assessment was finalised on the 15th September 1950.
3. However, the assessment of Messrs. Ambala Flour Mills was reopened under Section 34 of the Indian Income-tax Act, 1922 (Act No. XI of 1922), hereinafter to be referred to as the Act, by an order, dated the 31st March 1958, and for the aforesaid assessment year the income of the share of the Kaithal firm was determined at Rs. 53,843. Thereafter, on the 6th August 1958, the Income-tax Officer issued a notice under Sub-section (5) of Section 35 of the Act to the Kaithal firm why its assessment should not be reopened. The assessee objected that Sub-section (5) of Section 35 was not applicable as the assessment for the year 1948-49 was completed on the 15th September 1950, but this objection was overruled by the Income-tax Officer by his order, dated the 16th October 1958, and he further issued demand notice against the assessee for the assessment year 1948-49 for Rs. 46,345, the difference in the share income (copy of order being Annexure 'D' to the petition). The assessee's revision petition to the Commissioner of Income-tax, Punjab, was dismissed by the order, dated the 7th May 1962 (copy Annexure F) without giving hearing to him. The assessee then filed a writ petition under Article 226 of the Constitution to which the Commissioner, Income-tax, Punjab, as well as the Income-tax Officer, B Ward, Karnal, were parties and in essence the submissions made are that in the order of assessment of the Kaithal firm made on the 15th September 1950. there is no such error apparent on the face of the record which would attract the provisions of Sub-section (1) of Section 35 of the Act and inasmuch as the notice for rectification, dated the 6th August 1958, issued by the Income-tax Officer, was beyond the period of four years from the date of the finalisation of the assessment, the order could not be touched under Sub-section (1) of Section 35. As regards the deeming clause in Sub-section (5) of Section 35 of the Act, it is pointed out that it was enacted in the year 1953 and not being retrospective in its effect, it cannot be applicable to the assessment of a partner completed before the 1st April 1952.
4. Sub-section (1) of Section 35 of the Act, so far as material, is as follows:--
"The Commissioner or Appellate Assistant Commissioner may, at any time within four years from the date of any order passed by him in appeal or, in the case of the Commissioner, in revision under Section 33-A and the Income-tax Officer may, at any time within four years from the date of any assessment order or refund order passed by him on his own motion rectify any mistake apparent from the record of the appeal, revision, assessment or refund as the case may be, and shall within the like period rectify any such mistake which has been brought to his notice by an assesses".
5. The only other provision which needs notice is Sub-section (5), which is as follows:--
"Where in respect of any completed assessment of a partner in a firm it is found on the assessment or re-assessment of the firm or on any reduction or enhancement made in the income of the firm under Section 31, Section 33, Section 33-A, Section 33-B, Section 66 or Section 66-A that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of Sub-section (1) shall apply thereto accordingly, the period of four years referred to in that Sub-section being computed from the date of the final order passed in the case of the firm".
6. In support of the contentions advanced on behalf of the petitioner, there is a direct authority of the Supreme Court which is on all fours with the facts of the instant case Second Addl. Income-tax Officer, Guntur v. Atmala Nagaraj, (1962) 46 ITR 609 (SC). In that case the assessment of the assessee was completed on the 22nd January 1952. As the assessment of a firm in which the assessee had a share was not completed at that time, a certain amount was included as his share in the firm and the assessment orders were passed with a note that action under Section 35 of the Act would be taken when the correct share income was known. It was in the year 1954 that the assessment of the firm was completed and it was then discovered that the income of the share of the assessee in the firm was much higher than the figure previously included and then the revised assessment orders were made under Sub-section (5) of Section 35. It was held by Habibullah, J. speaking for himself and for the other Judges constituting the Bench, that Sub-section (5) of Section 35 was not applicable to cases where the assessment of the partner was completed before the 1st April 1952, even though the assessment of the firm was completed after the 1st April 1952. The ratio was that, though Section 35 (1) empowered the Income-tax authorities to rectify mistakes apparent from the record within four years from the date of the assessment order sought to be rectified, a mistake which becomes apparent only from the record of the firm was not a mistake apparent from the record so far as the assessment of the partner was concerned.
7. The learned Judges reiterated what had been held by them in a previous case in Income-tax Officer, V Circle, Madras v. S.K. Habibullah, (1962) 44 ITR 809 at pp. 811 and 812= (AIR 1962 SC 918 at pp. 919-920), that a mistake discovered from the record of the disposal of an other case could not be said to be a mistake apparent from the record of the assessment already finalised in the assessee's own case. It should, however, be noted that the facts in Habibullah's case, (1962) 44 ITR 809=(AIR 1962 SC 918) (supra) were somewhat different because the assessments of the assessee himself as well as of the two firms in which he was the partner had all been completed before the 1st April 1952. From the records of the firm it transpired that the proportionate share of the assessee in the losses of the firm was less than that which had been computed in his assessment. The Income-tax Officer on the 27th March 1954, revised the assessment of the assessee in respect of the two years in question after taking into account the share of the losses as computed in the assessments of the two firms. The Commissioner of Income-tax, to whom the assessee went in revision, held that Section 35 was properly invoked for rectification of the assessments and rejected the applications. The Madras High Court allowed the writ petitions under Article 226 of the Constitution filed by the assessee and quashed the order of the Income-tax Officer. The appeal by the Commissioner of Income-tax, Madras, to the Supreme Court failed.
8. In a Bench decision of this Court in Kundan Lal v. Income-tax Officer, B Ward, Amritsar, (1959) 37 ITR 337 (Punj), it was held that the Income-tax Officer had jurisdiction under Section 35 (5) of the Act to rectify an assessment of a partner of a firm completed in 1946, on a re-assessment of the firm under Section 34 made in March 1956, which necessitated the inclusion of the partner's correct share of the profits in his assessment. Though it is correct that in Habibullah's case, (1962) 44 ITR 809=(AIR 1962 SC 918), the learned Judges referred with approval to certain observations in Kundan Lal's case, (1959) 37 ITR 337 (Punj) yet that approval was not, to the decision of the case on the facts but to the principle enunciated, which was that Clause (5) of Section 35 of the Indian Income-tax Act, which was enacted by the Income-tax (Amendment) Act, 1953, was not declaratory of pre-existing law, and as it clearly affected vested rights which had accrued to the assessee, must be deemed to have come into force from the 1st April 1952. It had no greater retrospective effect than was expressly granted to it.
9. It has, however, been pointed out by Mr. D.N. Awasthy, learned counsel for the respondents, that in the decision of the Supreme Court in Ahmedabad Manufacturing and Calico Printing Co., Ltd. v. S.G. Mehta, (1963) 48 ITR 154 = (AIR 1963 SC 1436). some of the learned Judges have cast doubts on the correctness of the previous decision of that Court in Habibullah's case, (1962) 44 ITR 809 = (AIR 1962 SC 918) (supra) and Atmala Nagaraj's case, (1962) 46 ITR 609 (SC) (supra). But it must be remembered that in Ahmedabad Manufacturing and Calico Printing Co, Ltd.'s case, (1963) 48 ITR 154 = (AIR 1963 SC 1436), the learned Judges were dealing not with Sub-section (5) of Section 35 but with Sub-section (10) of Section 35 of the Act, which deals with recomputation of the tax payable by a company on account of rebate of income-tax being availed of by it wholly or in part for declaring dividend in any year, which amount would be deemed to have been made subject of incorrect relief under the Act. The counsel for the appellant in that case relied on Habibullah's case, (1962) 44 ITR 809 = (AIR 1962 SC 918) and Atmala Nagaraja's case, (1962) 46 ITR 609 (SC). Out of the five Judges constituting the Court two (S.K. Das, J. who spoke for himself as well as for Kapur, J.) held that so far as the case before them was concerned, there was no reason why the principle laid down in Habibullah's case, (1962) 44 ITR 809 = (AIR 1962 SC 918) (supra) should not be applied, the principle being simply this:
"A statute which is not declaratory of a pre-existing law nor a matter relating to procedure but affects vested rights cannot be given a greater retrospective effect than its language renders necessary, and even in construing a section which is to a certain extent retrospective, the line is reached at which the words of the section cease to be plain".
He observed, however, that the decision in Atmala Nagaraja's case, (1962) 46 ITR 609 (SC), may perhaps require reconsideration but about that the Judges did not express any final opinion then. Two other of the learned Judges (Hidayatullah, J. and Raghubar Dayal, J.) considered the same arguments and were of the view that both Habibullah's case, (1962) 44 ITR 809 = (AIR 1962 SC 918) and Atmala. Nagaraja's case, 1962-46 ITR 609 (SC), may have to be reconsidered on some future occasion but they also emphasised that they did not express a final opinion on Sub-section (5) of Section 35 but would leave that to a future case. Sarkar, J., who agreed with Hidayatullah, J. and Raghubar Dayal, J. in holding that the appeal be dismissed, was of the view that Habibullah's case, (1962) 44 ITR 809 = (AIR 1962 SC 918), as well as Atmala Nagaraja's case, (1962) 46 ITR 609 (SC), were entirely different from the case before the Court as the language used in Sub-sections (5) and (10) of Section 35 seems to be wholly different.
10. Mr. Puran Chand, learned counsel for the petitioner, has also emphasised that despite the doubts which some of the Judges constituting that Bench in Ahmedabad Manufacturing and Calico Printing Co.'s case, (1963) 48 ITR 154 = (AIR 1963 SC 1436) (supra) expressed to the correctness of the decision in Habibullah's case, (1962) 44 ITR 809 = (AIR 1962 SC 918) and Atmala Nagaraja's case, (1962) 46 ITR 609 (SC). they were cautious to say that they were not expressing any final view on the scope of Sub-section (5) of Section 35 and that would have to be done at some future date when the appropriate occasion arose. So Mr. Puran Ghana argued that this Court cannot assume to itself the functions of the Supreme Court, and so far as it is concerned the authority of the Supreme Court in Atmala Nagaraja's case, (1962) 46 ITR 609 (SC), holds the field, and as it is fully applicable to the facts of the present case, it must be held that the Income-tax Officer had no jurisdiction on the facts as mention ed above to reopen on the basis of his notice under Section 35 (5) of the Act the assessment on the assessee, which had already been finalised before the 1st April 1952. This argument, in our view, is unanswerable and it must, there fore, be held that the enhanced assessment in the order, dated the 16th October 1958 of the Income-tax Officer in pursuance of the notice issued under Sub-section (5) of Section 35 of the Act is without jurisdiction and of no effect. This order and in consequence the order of the Com missioner of Income-tax, dated the 7th May 1962, are quashed by a writ of certiorari. As the legal question involved in this case is not free from difficulty, the parties are left to bear their own costs.
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