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PETITIONER: THE INCOME TAX OFFICER, MADRAS

       Vs.

RESPONDENT: S. K.HABIBULLAH, MADRAS

DATE OF JUDGMENT: 24/01/1962

BENCH: SHAH, J.C. BENCH: SHAH, J.C. DAS, S.K. HIDAYATULLAH, M.

CITATION:  1962 AIR  918            1962 SCR  Supl. (2) 716  CITATOR INFO :  D          1963 SC1436  (7,9,11,14,20,31,32,42,44,46)  E          1968 SC 623  (5,8,9,11,13,15,17,19,20,21,22  RF         1986 SC 268  (4,8)

ACT:      Income Tax-Assessment of firm completed prior to  April   1,1952-Power  to   rectify   partner’s assessment-Individual and  firm distinct entities- Mistake discovered  in firms’  assessment-Partners if can  be made  liable-Income Tax Act, 1922(11 of 1922), s. 35 cls 1, 5

HEADNOTE:      M was a partner in two firms registered under the Indian  Income Tax  Act. He  submitted returns for assessment of Income Tax for the years 1946-47 and 47-48  with regard  to both  the firms showing losses. The  assessment of one of the firm for the year 1946-47  and 47-48  was completed on 31.10.50 and of  the other  for the year 1947 48 on 30.6.51 whereby  the  losses  calculated  were  less  than claimed by  M before  the Income  Tax Officer.  On receipt of  intimation of the orders passed in the assessments  of  the  two  firms  the  Income  Tax officer issued on May 4, 1953, notice to M to show cause why  the assessment for the year 1946.47 and 47-48 should  not be  rectified under s. 35 of the Act. M  replied that  he had  no objection  if the assessment was  completed  according  to  law.  On 27.3.54  the   Income-tax  Officer   revised   the assessment in  respect  of  the  two  years  after taking into  account the  share of  the losses  as computed in  the assessment  of the  two firms.  M died on  17.4.54 and  his son  H  applied  to  the Commissioner of  Income Tax  for revision  of  the orders. The  Commissioner  held  that  s.  35  was properly  invoked   for   rectification   of   the assessment. The High Court of Madras on a petition moved by  ordered that  a writ  of  certiorari  to issue quashing  the  order.  The  Commissioner  of Income-tax came up in appeal.

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^      Held, that  s. 35  (1) of  the Income Tax Act empowers the  Income Tax  Authorities  to  rectify mistakes  apparent  from  the  record  of  certain orders passed  by them.  But if  the law  does not authorise the  Income Tax  Officer to  rectify the assessment, assent  could not  validate  what  was unauthorised.      Held,  further,   that  for  the  purpose  of assessment an  individual and  a firm are distinct entities; and  even if  an individual is a partner of  a   firm,  a  mistake  discovered  because  of something contained  in the assessment of the firm is not  a mistake  apparent  from  the  record  of assessment of the individual partner. 717      Held, also, that the Legislature has given to cl. (5)  of s.  35  which  was  incorporated  with effect from April 1, 1952, a partial retrospective operation. The provision enacted by cl. (5) is not procedural in  character, it affects vested rights of the  assessee.  Therefore  in  the  absence  of compelling  reasons   the  court   would  not   be justified in  giving a  greater retrospectively to the provision than is warranted by the plain words used by  the Legislature. Clause (5) of s. 35 does not purport  to amend cl. (1) of the same section. It confers  additional power of rectification upon the Income  Tax Authorities; and that power cannot be exercised  in respect  of  assessment  of  firm which have been completed before the date on which the power was invested.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION : Civil Appeals Nos. 557 and 558 of 1960.      Appeals from  the judgment  and  order  dated April 10,  1957, of  the Madras High Court in W.P. No. 952 of 1955.      K. N.  Rajagopal Sastri and D. Gupta, for the appellants.      R. Thiagarajan, for the respondent.      1962. January  24. The  Judgment of the Court was delivered by      SHAH,  J.-One   S.  K.   Mohideen-hereinafter referred to  as the  assessee-was a partner in two firms-Messrs.  Dinshaw   and   Co.   and   Messrs. Palanippa  Chettiar   and  Co.   The  firms   were registered under  the Indian  Income Tax  Act. The assessee  submitted  returns  of  his  income  and incorporated therein  the estimated  share of  his losses in  the two  firms at  Rs. 20,000/- and Rs. 10,000/- for  the assessment  year 1946-47  and at Rs. nil  and Rs.  12,436/- for the assessment year 1947-48. The Income-tax Officer, V. Circle, Madras completed the  assessment for  the  two  years  on February 20,  1950 after  adopting  the  estimates furnished by the assessee, but he made a note that the losses  accepted were  subject to  revision on ascertainment   of    correct   particulars.   The assessment of  Messrs. Dinshaw & Co, for the years 1946-47 and 1947-48 was completed on 718

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October 31,  1950 by  the  Income-tax  officer  II Circle, Madrass and the proportionate share of the assessee for  the losses  was computed for the two years   at    Rs.   15,839/-   and   Rs.   1,046/- respectively.  Assessment  of  Messrs.  Palaniappa Chettiar &  Co. for  1947-48 was  completed by the Income-tax   Officer, Special  Circle on  June 30, 1951 and  the share  of the  assessee in  the loss suffered by that firm was computed at Rs. 2,009/-. On receipt  of intimation  of the orders passed in the assessment  of the  two firms,  the Income-tax officer, V  Circle, Madras  issued on  May 4, 1953 notices to  show cause  why the assessments of the asessee, for  the years 1946-47 and 1947-48 should not be  rectified under  s. 35  of the  Income-tax Act. On  March 24, 1954, the assessee wrote to the Income-tax Officer stating: "This is to inform you that  I   have  no  objection  in  completing  the assessments of  the previous  years in  accordance with law".  On  March  27,  1954,  the  Income-tax officer revised  the assessment of the assessee in respect of the two years after taking into account the  share  of  the  losses  as  computed  in  the assessments of the two firms.      The assessee  died on  April 17, 1954 and his son S.  K. Habibullah-hereinafter  referred to  as the  respondent-applied  to  the  Commissioner  of Income-tax, Madras  praying for  revision  of  the orders. The  Commissioner  held  that  s.  35  was properly  invoked   for   rectification   of   the assessments and rejected the applications. But the High Court  of Judicature  at Madras  in petitions under Art.  226 of  the Constitution  filed by the respondent ordered  that writs  of   certiorari do issue  quashing   the  orders  of  the  Income-tax Officer, V Circle. The Commissioner of Income-tax, Madras appeals  to this  Court with certificate of fitness granted by the High Court.      The  plea   of  the   Commissioner  that  the assessee having  assented to the rectification, it was not 719 open to  the respondent to challenge the authority of the  Income-tax officer,  has no  force. By his letter dated  March 24,  1954 the  assessee merely informed the  Income-tax officer  that he  had  no objection to  rectification according  to law. But if  the  law  did  not  authorise  the  Income-tax Officer to  rectify the  assessment, assent  could not validate what was unauthorised.      Section   35(1)   empowers   the   income-tax authorities to  rectify mistakes apparent from the record of  certain  orders  passed  by  them.  The clause (omiting  parts not material) provides that 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. The power of rectification may be exercised subject to two  conditions:  (1)  that  there  is  a  mistake apparent from  the record  of the  assessment, and (2) that the order of rectification is made within four years  from the date of the assessment sought to  be   rectified.  The   mistake  which  may  be rectified need  not be in the order itself: it may

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be in  any part  of the  record or  proceeding  of assessment of the assessee. But for the purpose of assessment an  individual and  a firm are distinct entities and even if an individual is a partner of the  firm,   a  mistake   discovered  because   of something contained  in the assessment of the firm is not  a mistake  apparent  from  the  record  of assessment of  the individual  partner. In Kanumar lapaudi      Lakshminarayana   Chetty   v.   First Additionnal  Income-tax   Officer,  Nellore(1)  in dealing with  the question  whether the  record of the assessment  of the firm may be regarded as the record  of   the  assessment   of  the  individual partner, Subba  Rao, C.J.  speaking for  the Court observed, and, in our Judgment, correctly:           "But it  is said  that section 35 of the      Act even without the amendment would have 720      enabled the  Income Tax authorities to reopen      the assessment on the ground that there was a      Mistake apparent  from the  record. But  from      the  record   of  final   assessment,  it  is      impossible to  say that  there was  a mistake      apparent from  the record,  for the assessing      authority  accepted   a  certain   figure  as      representing the  share of  the assessees  in      the firm  and made  a final  assessment.  The      mistake  is  not  in  the  record  but  by  a      subsequent assessment  of  the  firm  it  was      discovered that  the earlier  assessment, was      wrong to  the extent  of the assessees’ share      in the  firm. It  is not  a mistake  apparent      from the record but a mistake discovered from      the disposal of another case". Section 35(1)  of the  Income-Tax  Act  could  not therefore  be   resorted  to   by  the  Income-tax authorities for  rectification of  the assessments of the  assessee, for  there was no error apparent from the record of those assessments.      The Income  tax Officer,  however, sought  to rely upon s. 35(5) which was incorporated by s. 19 of the Indian Income-tax (Amendment) Act, 1953 (25 of 1953)  with effect  from  April  1,  1952.  The clause which  was incorporated is in the following terms           "(5) Where  in respect  of any completed      assessment of a partner in a firm it is found      on the assessment or reassessment of the firm      or any  reduction or  enhancement made in the      income of  the firm under section 31, Section      66, Section  66A, Section  33B, Section 66 or      Section 66A  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 721      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

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    passed in the case of the firm." Clause (5) was one of a group of clauses, added by Act 25  of 1953,  dealing  with  rectification  of assessments. Clause  (5) dealt  with inclusion  of income or correction of the income of a partner in a firm  consequent upon assessment or reassessment of the  firm of which he was a partner. Clause (6) dealt with  recomputation of  total income  of  an assessee in  consequence of  modifications made in the Excess Profits Tax or the Business Profits Tax payable by an assessee subsequent to an assessment made under  the Indian  Income-tax Act. Clause (7) dealt   with    rectification   consequent    upon modification of orders under 8. 23A of the Income- tax Act  cl.(8), which was enacted (in the form in which it  now exists)  by the  Indian Finance Act, 1956, dealt with the rectification consequent upon proceedings in reassessment under 8. 34 (1) (a) or 8. 31  (1A). The  Legislature by  a fiction in all these classes  of cases  regarded  the  inclusion, correction,  computation   or   recomputation   as rectification  of  a  mistake  apparent  from  the record and  prescribed special  termini  reckoning for the  period of  four years  within  which  the rectification must  be made,  Under. cl.  (5) with which alone  we are  directly concerned  in  these appeals,  the   inclusion  of  the  share  in  the assessment  of  the  partners  or  the  correction thereof is  deemed to  be a  mistake apparent from the record  within the meaning of the section, and sub-s. (1)  applied thereto accordingly-the period of four  years being computed from the date of the final order  passed in  the case  of the firm. The discrepancy disclosed  as a  result of assessment, or reassessment  of a  firm between the share of a partner included  in the  individual assessment of that partner and his share disclosed in the 722 assessment of  the firm  was not an error apparent from the record within the meaning of s. 35(1) and the  Legislature  enacted  a  fiction  making  the inclusion  of  the  share  in  the  assessment  or correction  thereof   such  a   mistake.  If   the inclusion of  the share  or the  correction of the assessment were  an error apparent from the record and falling  under cl. (1) of 8. 35, the enactment of 1.  (5)  was  plainly  unnecessary.  When  the Legislature has  deliberately enacted a fiction of the nature  set out  in cl.  (5), we are unable to agree with  the contention  raised by  counsel for the Revenue  that the enactment of the fiction was ex-abundanti cautela.  Rectification of the nature contemplated  by  cl.  (5)  could  not  have  been effected under  cl. (1),  and to remove the lacuna the legislature  declared  that  what  was  not  a mistake should for the purpose of rectification of assessment be  regarded as a mistake apparent from the  record   and  provided  a  terminus  for  the computation of the period of four years.      The  assessments   of  the   two  firms  were completed a  long time  before April 1, 1952 It is also common ground that the individual assessments of the  assessee were  not provisional  but  final assessments under 8. 23 (3) of the Income-tax Act.      The question  which falls to be considered is

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whether relying  upon cl.  (5) of  s. 35 an Income tax Officer may rectify the assessment of a person who is  a partner of a firm when the assessment of the firm  is completed  before the  1st of  April, 1952. The  Legislature has  given  to  cl.  (5)  a partial  retrospective  operation.  The  provision enacted by cl. (5) is not procedural in character: it  affects   vested  rights   of  the   assessee. Therefore in the absence of compelling reasons the court would  not be  justified in giving a greater retrospectivity to the provision than is warranted by the  plain words  used by  the Legislature.  As observed by 723 the Judicial  Committee of  the Privy  Council  in Income-tax Commissioner v. Khemchand Ramdas :      "      x    x    x    x     when once a final      assessment is  arrived at,  it cannot,  in  s      their Lordships  ’opinion, be reopened except      in the  circumstances detailed in sections 34      and 35  of the  Act    x  x  x and within the      time limited by those section." The orders  of  assessment  are,  subject  to  the provisions   relating   to   appeals,   revisions, reassessment and  rectification, final:  it is not open to  the  Income-tax  Officer  to  reopen  the assessment because  he thinks  fit to  do so.  The provisions    relating    to    assessments    and rectification or reopening thereof are exhaustive, and may not be extended by analogies. The right to rectify an  assessment may  therefore be exercised in strict compliance with conditions prescribed by the statute  in that behalf. Before April 1, 1952, rectification of  assessment of  an individual  on the   disclosure   of   errors   consequent   upon assessment of  the firm  of which  he is a partner was not  for reasons  already  stated  permissible under cl.  (1) of  s. 35  This power was conferred for the  first time  by cl.  (5) as  from April 1, 1952, and by the express words of the clause arose from the  assessment of  the firm.  If by  the law prevailing at  the time when the assessment of the firm was  made, no  such result as is contemplated by the  new clause  (5) arose,  to give  a  larger retrospective operation  than is  directed, is  to ascribe to  the Legislature an intention different from the  one expressed,  and  to  make  a  larger inroad upon  the finality  of that assessment than is permitted  by the  Legislature.  Section  35(5) does not  purport to amend cl. (1); that clause is left  untouched   by  the  amending  statute.  Its application, by  fiction,  is  extended  to  other clauses of  cases by  declaring what  in truth are not mistakes,  as mistakes.  clause (5), therefore confers an 724 additional power of rectification upon the Income- tax authorities  and in  the absence of compelling reasons we  will not be justified in upholding the exercise of  the power  to  assessments  of  firms which have been completed before the date on which the power was invested. Some  assistance   may   be   derived   from   the phraseology used  by the  legislature in  cl.  (6) which was  enacted simultaneously  with. cl.  (5).

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That clause provides, omitting parts which are not material:           "Where the  excess profits  tax  or  the      business profits  tax payable  by an assessee      has been  modified x   x   x    x    or where      any excess profits tax or business profit tax      has been assessed after the completion of the      corresponding   assessment   for   income-tax      (whether before  or after the commencement of      the Indian Income-tax (Amendment) Act, 1953),      and in consequence thereof it is necessary to      recompute the  total income  of the  assessee      chargeable to  income-tax, such recomputation      shall be  deemed to  be a  rectification of a      mistake apparent  from the  record within the      meaning of this section,  x    x    x". Manifestly, by the express provisions contained in cl. (6) the fiction applies whether the assessment is completed  before or  after the commencement of the Indian  Income-tax (Amendment) Act, 1953. Even though  cl.   (6)  is  also  made  retrospectively operative as  from April  1, 1952, the legislature has authorised the revenue authorities after April 1, 1952  to pass  an order  recomputing the  total income  of   the  assessee   whether  or  not  the assessment was  completed before  the commencement of the Indian Income tax (Amendment) Act, 1953. It is true  that by  the Explanation  to that clause, for the  purposes of  this sub-section,  where the assessee is 725 a firm,  the provisions  of sub-s.  (5) shall also apply as  they apply  to the  rectification of the assessment  of  the  partners  of  the  firm,  but thereby   an    intention   to   give   a   larger retrospective operation  to cl.  (5), in so far as it deals  with  rectification  of  assessments  of partners consequential  upon the completion of the assessment of the firm in which they are partners, is not  indicated. When  the legislature under cl. (6) of s. 35 expressly authorised rectification in the circumstances  mentioned therein  even if  the assessment has  been completed  before the  Indian Income-tax (Amendment)  Act, 1953,  and it made no such provision  in cl. (5), it would be reasonable to infer  that the  Legislature did  not intend to grant  to  the  revenue  authorities  a  power  to rectify assessments  falling within  cl. (5) where the firm’s  assessment was  completed before April 1, 1952.      In our  view, it  was rightly  held in Kandan Lal v. Income-tax Officer following Kanumaralapudi Lakshminarayana Chetty v. First Additional Income- Tax Officer, Nellore that cl. (5), of s. 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  right which  had accrued  to  the assessee, must  be deemed  to have come into force from  April   1,   1952.   It   had   no   greater retrospective effect than was expressly granted to it. The  power to  rectify assessment of a partner consequent upon  the assessment  of  the  firm  of which he  is a  partner by including or correcting his share  of profit  or  loss  can  therefore  be

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exercised only  in Case  of assessment of the firm made on  or after  April 1,  1952. The  Income-tax officer has  no jurisdiction  under cl. (5 ) of s. 35 of  the Act  to rectify  the  assessment  of  a partner of  a firm  consequent upon the assessment or 726 reassessment of  the firm disclosing an error made before April 1, 1952.      The appeals  therefore fail and are dismissed with costs. On hearing fee.      Appeals dismissed.