AI Structured Summary
Not yet generated for this judgment
Judgment
Rajagopalan, J.—The petitioner is the son of the late S. K. Mohideen, hereinafter referred to as the assessee. The assessee was a partner of
Dinshaw and Co., and of the firm Palaniappa Chettiar (Jupiter Pictures) among other concerns. The assessment of Mohideen for the assessment
years 1946-47 and 1947-48 was completed on 20-2-1950. By that date the assessment of the firm ot Palaniappa Chettiar for 1947-48 and that
of Dinshaw and Co. for the years 1946-47 and 1947-48 had not been completed, Mohideen''s assessment was, however, completed, accepting
provisionally his estimates of his share of the losses of those two partnership concerns. The assessee''s share of the losses of Dinshaw and Co.,
was shown as Rs. 20,000 for 1946-47 and as Rs. 10,000 for 1947-48, and his share of the losses in the firm of Palaniappa Chettiar for 1947-48
was shown as Rs. 12,436.
The assessment of Dinshaw and Co., for both the years was completed on 31-10-1950. As against the Rs. 20,000 provisionally accepted as
the assessee''s share of the loss for 1946-47, Rs. 15,839 was ascertained as his share. For the assessment years 1947-48 the assessee''s share of
the loss was ascertained as Rs. 1,046; the provisional basis for assessment was Rs. 10,000. The assessment of the firm of Palaniappa Chettiar for
1947-48 was completed on 30-0-1951 when the assessee''s share of the losses was determined as Rs. 2,009 as against the provisionally
accepted figure of Rs. 12,346.
Act 25 of 1953, which amended Section 35 of the Income Tax Act (hereinafter referred to as the Act) and added Sub-clause (5) to Section
35, received the assent of the President on 24-0-1953. But, as Section 1 (2) of Act 25 of 1933 directed that this amendment among others should
be deemed to have come into force on 1-4-1952, the position was as if Section 35 (5) had become part of the Act on 1-4-1952.
On 4-5-1953, that is, even before Act 25 of 1933 received the assent of the -President, the Income Tax Officer issued a notice to the assessee
u/s 35 of the Act to show cause why the assessment for 1946-47 and 1947-48 should not be rectified on the basis of the completed assessments
of Dinshaw and Co., and Palaniappa Chettiar. The assessee represented that that could be done if the law permitted it. The Income Tax Officer,
however, recorded:
The assessee in his reply dated 24-3-1954 intimated that he has no objection to the revision of the assessment.
It was not disputed that as a statement of fact this was incorrect. The Income Tax Officer revised the assessment of the assessee for 1946-47 and
1947-48 by his order dated 27-3-1854. An additional tax of Rs. 847-14-0 was demanded for 1946-47. The additional tax for 1947-48 that was
demanded was Rs. 16,984-11-0. By 27-3-1954 the period of four years for which Section 35 (1) of the Act provided, computed from the date
of the original assessment 20-2-1950, had expired.
The assessee Mohideen died on 17-4-1954. His son, the petitioner, moved the Commissioner of Income Tax, to revise the orders of the
Income Tax Officer dated 27-3-1954 on the grounds, that the power to rectify the assessment of 1946-47 and 1947-48 u/s 35 was barred by
limitation, and that Section 35 (5) could not apply to assessments completed before 1-4-1952. The petitioner also pointed out to the
Commissioner that the Income Tax Officer had refused the petitioner''s request to rectify the assessment for 1948-49, the original assessment for
which also had been completed on 20-2-1930. The petitioner would have been entitled to some relief had that rectification been allowed.
By his order dated 30th September 1953, the Commissioner rejected the petitioner''s request to set aside the orders of the Income Tax Officer
directing the rectification of the assessment for 1946-47 and 1947-48. The Commissioner, however, instructed the Income Tax Officer:
''''As a corollary, the relief prayed for the assessment for 1948-49 by incorporating the correct share income should be allowed and if necessary to
that extent to revise the 1949-50 assessment."" The relevant portion of Section 35 (1) ran:
The Income Tax Officer may at any time within four years from the date of any assessment order .......passed by him on his own motion rectify
any mistake apparent from the record of .............. the assessment..........and shall within like period rectify any such mistake which has been
brought to his notice by an assessee.
Section 35 (5) which as we pointed out must be deemed to have been part of the Act on 1-4-1952 ran:
Where in respect of any completed assessment of a partner in a firm it is found on the assessment r re-assessment of the firm, or on any reduction
or enhancement made in the income of the firm....... 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.
The principal contention of the learned counsel for the assessee was that the provisions of Section 35 (5) could not be applied to any
assessment completed before 1-4-1952. He relied on KANUMARLAPUDI LAKSHMINARYANA CHETTY AND OTHERS Vs. FIRST
ADDITIONAL Income Tax OFFICER, NELLORE., .
The defence of the learned counsel for the Department was on the following lines. The assessments for 1946-47 and 1947-48 did not become
final when they were completed on 20-2-1950 because they could be re-opened either u/s 34 or u/s 35 (1) of the Act within the time of four years
allowed by either of these provisions. Before that period of four years expired Section 35 (5) of the Act came into force on 1-4-1952. That
extended the period of limitation to re-open and correct an assessment, as the period of four years allowed by Section 35 (5) could be computed
not from 20-2-1950, the date of the original assessment, but from 31-10-1950 and 30-6-1951, the dates of the final orders in the case of the
firms of which the assessee was a partner. In other worlds, the assessee had no vested right to any finality of the assessments completed on 20-2-
1950, so long as the Department had the right to re-open an assessment u/s 34 or u/s 35 of the Act. As within that period a further right was
conferred on the Department by Section 35 (5), that right could be validly exercised within the time prescribed by Section 35 (5).
In (1938) 6 ITR 414 (Privy Council) their Lordships of the Privy Council, after referring to the terms of Section 34 and Section 35 of the Act
observed at p. 426 (of ITR): (at p. 180 of AIR):
In view of these express provisions of the Act it is in their Lordships'' opinion quite impossible to suppose that the Income Tax Officer may in
every kind of circumstance and after any lapse of time make a fresh assessment or issue fresh notice of demand........In their Lordships'' opinion the
provisions of the two sections are exhaustive and prescribe the only circumstance in which and the only lime in which such fresh assessments can
be made and fresh notices of demand can be issued.
Whether the assessee''s case could have been re-opened u/s 34 of the Act does not arise for consideration in these proceedings for the simple
reason that Section 34 was never invoked. It was the power to rectify that was vested in the Income Tax Officer by Section 35 of the Act that was
invoked. On 4-5-1953, when the Income Tax Officer invoked these powers and issued notices to the assessee, Section 35 (5) had not yet been
enacted, but when it was enacted on 24-5-1953, Section 35 (5) was given effect from an anterior date 1-4-1952. Thus the Income Tax Officer
has jurisdiction to exercise the powers vested in him by Section 35 (1) as well as those vested in him by Section 35 (5) on 4-5-1953 and
thereafter.
There is one feature of this case to which we shall advert at this stage. The learned counsel for the Department was, in our opinion, right in his
contention, that in the circumstances of this case, the assessment of Mohideen for 1946-47 and 1947-48 could have been rectified u/s 35 (1) itself,
as it was really a case of rectifying a mistake apparent on the face of the record of assessment. The assessment orders dated 20-2-1950
specifically referred to the shares of the assessee in the looses sustained by the two firms of which he was a partner, Dinshaw and Co., and
Palaniappa Chettiar. They were determined on a provisional basis. The determination was provisional till the assessments of Dinshaw and Co., and
Palaniappa Chettiar could be completed. The assessment orders specifically recorded that the assessments of Dinshaw and Co., and Palaniappa
Chettiar had not been completed. That made the assessment orders in relation to Dinshaw & Co. and Palaniappa Chettiar part of the assessee''s
record of assessment. That the figures shown in the orders of the assessee''s assessments on 20-2-1950 were incorrect, tested by another portion
of the record of that assessment, the assessment of Dinshaw and Co., and Palaniappa Chettiar which were completed only later, did not admit of
any controversy. The assessment of Dinshaw and Co., was completed on 31-10-1950 and that of Palaniappa Chettiar on 30-6-1951. At any time
thereafter, when the mistake on the face of the assessee''s record of assessment was established, the Income Tax Officer could have rectified the
assessment of the assessee u/s 35 (1), But that rectification could have been validly effected only if it had been ordered within four years from 20-
2-1950, as that was all the period for which Section 35 (1) provided. The rectification ordered on 27-3-1954 fell outside that period.
That, however, does not lead to the conclusion that every case of rectification necessitated by the fact, that an assessee''s share of the profits
or losses of a firm of which he was a partner had been either omitted of had been incorrectly assessed, would be a rectification within the scope of
Section 35 (1). That in a given case, the assessee''s for example, such a rectification could fall within Section 35 (1) as well as u/s 35 (5) does not
mean that every such rectification could be dealt with under either subsection. Section 35 (1) is a general provision. Section 35 (5) is not a special
provision for rectification in the contingency specified; it provided for rectification on the basis of a legal relations fiction. Section 35 (5) directs that
where 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 shall be deemed to be a rectification of a mistake apparent from the record within
the meaning of Section 35. Therefore, even if it is not a case of a mistake apparent from the record or on the face of the record of assessment, it is
deemed to be such a mistake; and thereafter the provisions of Section 35 (1) apply, subject however, to the period of limitation prescribed by
Section 35 (1) being computed from the date specified in Section 35 (5). The necessity to enact a legal fiction by which something which is not a
mistake apparent on the face of the record is deemed to be such a mistake is wholly inconsistent with the view, that Section 35 (5) was merely
declaratory of the previous law on the subject as embodied in Section 35 (1) and as implied in these provisions.
We are in respectful agreement with the dictum of Subba Rao, C. J., in KANUMARLAPUDI LAKSHMINARYANA CHETTY AND
OTHERS Vs. FIRST ADDITIONAL Income Tax OFFICER, NELLORE., , that Section 35 (5) was not declaratory of a pre-existing law.
Section 35 (5) authorised a new class of mistakes to be rectified; what had not hitherto been a mistake apparent on the face of the record of
assessment within the meaning of Section 35 (1) became such a mistake by the operation of the legal fiction enacted by Section 35 (5). That
mistake also could thereafter be rectified in addition to the mistakes for the rectification of which provision had already been made in Section 35
(1). The power to rectify what we can conveniently refer to at this stage as ''fictional'' mistakes was vested in the Income Tax Officer on 1-4-1952.
There was no express provision in Section 35 (5) to make it apply to assessments completed before 1-4-1952. Nor can we find anything in the
language of Section 35 (5) which could sustain a plea, that by necessary intendment Section 35 (5) applied also to assessments completed before
1-4-1952.
Neither in express terms nor by necessary intendment did Section 35 (5) in any way amend the provisions of Section 35 (1). Section 35 (1)
was left intact even after the addition of Section 35 (5) to the Act. Therefore the fact that on 1-4-1952, when Section 35 (5) came into force, the
period of limitation prescribed by Section 35 (1) had not run out in the case of the assessee, could not enlarge the period of limitation prescribed
by Section 35 (1). It was independent of Section 35 (1) that the powers u/s 35 (5) could be invoked. That the period of limitation prescribed by
Section 34 had not expired in the case of the assessee on 1-1-1952 had even less relevancy. The assesse''s case was not dealt with u/s 34. It was
not dealt with u/s 35 (1). It could not have been dealt with u/s 35 (1) after the expiry of four years reckoned from the date of the original
assessment 20-2-1950. That left only Section 35 (5), which, as we have pointed out, conferred a power independent of those for the exercise of
which Section 34 and Section 35 (1) provided. Section 35 (5) could not apply, as the assessment in this case had been completed long before 1-
4-1952, when a fresh power to rectify assessments was conferred on the Income Tax Officer. As pointed out in (1938) 6 ITR 414 (Privy Council)
the power to re-open an assessment must be sought within the limits of the specific statutory provisions. It may not be necessary to put it solely on
the basis that the assessee has a vested right to claim finality of assessment. The question, in our opinion, really is what was the statutory power that
was exercised? What was the jurisdiction of the Income Tax Officer to re-open an assessment? That power and that jurisdiction must be based
upon a specific statutory provision in the Act. In the case of assessee the power given by Section 35 (1) could not have been exercised on 27-3-
1954. That given by Section 35 (5) should not have been exercised in relation to assessments completed before 1-4-1952. In our opinion, on 27-
3-1954, the Income Tax Officer had no jurisdiction to rectify the assessments of the assessee for the assessment years 1946-47 and 1947-48.
The learned counsel for the Department pointed out that the order of the Commissioner dated 30th September 1955 confirmed the
rectification ordered by the Income Tax Officer with reference to the assessment years 1946-47 and 1947-48, and further directed rectification of
the assessment for 1948-49, under which the petitioner would be entitled to a considerable amount of relief. The petitioner in these proceedings
attacked only the validity of the rectification ordered by the Income Tax Officer and confirmed by the Commissioner with reference to the
assessment for the assessment years 1946-47 and 1947-48. The learned counsel for the Department was right in his contention, that the assessee
should not be permitted by any order of ours to retain a benefit that accrues to him under the order dated 30-9-1955, while avoiding the liability
imposed upon him by that order.
The petition is allowed and the rule will be made absolute. The entire order of the Commissioner dated 30-9-1955 and the orders of the
income tax Officer in relation to the assessment years 1946-47 and 1947-48 will stand set aside. No costs.