30 April 1964
Supreme Court


Case number: Appeal (civil) 322 of 1963






DATE OF JUDGMENT: 30/04/1964


CITATION:  1965 AIR  171            1964 SCR  (8)  72  CITATOR INFO :  R          1969 SC 778  (5)

ACT: income  Tax-Assessment as agent of  non-resident  party-Time limit for issuing notice-Scope of amending statute extending time 73 limit-Validity  of notice-Indian Income-tax Act 1922 (11  of 1922). s. 34(1)(b)(iii) proviso.

HEADNOTE: The appellant company was carrying on business in Bombay  as commission agents.  In the course of assessment  proceedings for  the year 1954-55, the Income-tax Officer  noticed  from the  ssee’s boo s of account that the assessee had  business connections with certain nonresident parties and found  that the  transactions disclosed that through the assessee  those non-resident  parties  were receiving  income,  profits  and gains.   He considered that s. 43 of the  Indian  Income-tax Act,  1922,  was applicable to the assessee  and  issued  on March  27,  1957,  a  notice under s.  34  of  the  Act  for assessment  of  the assessee as an agent of  the  said  non- resident  parties.  The assessee pleaded, inter  alia,  that the proceedings intiated by the Income-tax Officer under  s. 34 were barred since the notice issued by him was after  the expiry of one year from the end of the assessment year 1954- 55,  but  the  Income-tax Officer  rejected  the  contention relying  on  the  amendment  made  to  the  proviso  to   s. 34(l)(b)(iii)  by  the Finance Act, 1956,  under  which  the period of one year was changed to two years.  The  amendment was  given retrospective operation upto April 1,  1956,  but since  the power to issue a notice under the  unamended  Act had  come  to  an end on March 31, 1956,  the  question  was whether  the  Income-tax  Officer could issue  a  notice  of assessment  to a person as an agent of a non-resident  party under  the amended provision when the period prescribed  for such  a  notice had before the amended Act came  into  force expired. HELD:The   proceedings  initiated  by  the   Income-tax Officer by the notice dated March 27, 1957, were barred; the authority of the Incometax Officer under the Indian  Income-



tax  Act  before it was amended by the Finance Act  of  1956 having  come  to an end, the amending  provision  would  not entitle him to commence a proceeding even though at the date when he issued the notice it was within the period  provided by the amendment. Notwithstanding  the  fact that there  was  no  determinable point of time between the expiry of the time provided  under the  old Act and the commencement of the Amendment  Act,  in the  absence of an express provision or  clear  implication, the  legislature  could  not be said  to  have  intended  to attribute  to  the  Amending  provision  a  greater  retros- pectivity than was expressly mentioned.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 322 of 1963. Appeal  from the Judgment and order dated April 1,  1958  of the  former Bombay High Court in  Miscellaneous  Application No. 327 of 1957. K.N.  Rajagopala  Sastry  and R.  N.  Sachthey,  for  the appellant. 74 Bishan  Narain, S. P. Mehta, J. B. Dadachanji, 0. C.  Mathar and Ravinder Narain, for the respondent. April 30, 1964.  The Judgment of the Court was, delivered by SHAH J.--M/s Lal and Company hereinafter called the assessee carry  on business in Bombay as commission agents.   In  the course  of assessment proceedings for the year  1954-55  the assessee’s books of account were examined by the  Income-tax Officer  and it was noticed that the assessee  had  business connections  with certain non-resident parties.   On  March, 12,  1957,  the Income-tax Officer issued a  notice  calling upon  the  assessee  to show cause why  in  respect  of  the assessment  year 1954-55 the assessee should not be  treated under s. 43 of the Indian Income-tax Act, 1922, as an  agent in respect of twenty-five non-resident parties named in  the notice.   The assessee denied that he had "direct  dealings" with  any  non-resident  party and that  in  any  event  the proposed action was barred because the period prescribed for initiation  of  proceeding had expired,  and  requested  the Income-tax  Officer to drop the proceeding.  The  Income-tax Officer  B-III  Ward,  Bombay issued on March  27,  1957,  a notice  under  s.  34  of  the  Indian  Income-tax  Act  for assessment  of  the assessee as an agent of  the  twentyfive named non-resident parties.  The assessee submitted a return showing  his income as "nil".  The Income-tax  Officer  held that the transactions disclosed from the books of account of the  assessee clearly showed that the assessee "had  regular business connection with" non-resident parties, that through the  assessee  those  non-resident  parties  were  receiving income, profits and gains, and s. 43 was clearly  applicable to  the  assessee there being definite  business  connection between  the  assessee  and  the  named  non-residents.   He therefore treated the assessee as agent of the  non-resident parties, under s. 43 of the Act. The  Income-tax Officer also rejected the contention of  the assessee  that action under s. 34 was barred at the date  of the  notice issued to the assessee.  Relying upon the  first proviso  to s. 34(1) (b) (iii) inserted by the Finance  Act, 1956, the Income-tax Officer held that the Legislature had 75 by  amendment extended the "time-limit in clear and  express terms so as to cover" action under s. 34 against a person on whom  the  assessment or reassessment is to be  made  as  an



agent  of a non-resident person under s. 43 of the  Act  for the  assessment year 1954-55, and accordingly  assessed  the income of the assessee at Rs. 60,684, estimating the  income of the parties residing outside the taxable territories,  in the absence of accounts to be Rs. 50,000. The  asessee  then :filed a petition under Art. 226  of  the Constitution  in  the  High Court of  Judicature  at  Bombay praying that a writ in the nature of mandamus or prohibition do issue restraining and prohibiting the Income-tax  Officer from giving effect to or taking any steps or proceedings  by way  of recovery or otherwise in pursuance of the orders  of assessment.   The  assessee pleaded, inter  alia,  that  the proceedings for assessment under s. 34 of the Act  commenced by the Income-tax Officer after the expiry of one year  from the  end  of the assessment year 1954-55  were  without  the authority  of law.  The High Court of Bombay, following  its earlier judgment in S. C. Prashar v. Vasantsen  Dwarkadas(1) held that at the date when the notice was issued, by  reason of  the  proviso which was in operation under  s.  34(1)  in respect of the assessment year 1954-55 the notice was out of time  and  that  the period provided thereby  could  not  be extended  by the Finance Act of 1956 so as to authorise  the Income-tax  Officer  to  issue a notice  for  assessment  or reassessment of the assessee as statutory agent of a  party, residing outside the taxable territory.  In the view of  the High Court the notice dated March 27, 1957, was invalid, and a  valid notice being a condition precedent to the  exercise of jurisdiction under s. 34, the proceeding under s. 34  was not  maintainable.   Against  the order of  the  High  Court issuing  writs prayed for by the assessee, with  certificate of  fitness  this  appeal is  preferred  by  the  Income-tax Officer, Bombay. In order to appreciate the contention raised by the assessee and  which  has  found favour with the  High  Court,  it  is necessary to refer to the relevant provisions of s. 34, 76 as they stood before the section was amended by the  Finance Act,  1956.   The clauses relevant  prescribing  the  period within which notice may be issued read as follows: (1) (a) If -   x x x (b)  x x x he may in cases falling under clause (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,  x  x  x a notice containing all  or  any  of  the requirements  which may be included in a notice  under  sub- section  (2) of section 22 and may proceed to assess or  re- assess  such income, profits or gains or recompute the  loss or depreciation allowance; x x x Provided that-      (i)  x    x    x      (ii) x    x    x (iii)     Where  the  assessment made or to be  made  is  an assessment  made or to be made on a person deemed to be  the agent  of  non-resident person under section 43,  this  sub- section  shall  have effect as if for the periods  of  eight years and four years a period of one year was substituted." By  s.  18 of the Finance Act, 1956, s. 34  was  extensively amended and cl. (iii) of the proviso was substituted by  the following proviso: "Provided  further  that the Income-tax  Officer  shall  not issue  a notice under this sub-section for ,any  year  after the expiry of two years from that year if the person on whom an assessment or reassessment is to be made in pursuance  of



the notice is a person deemed to be an agent of non-resident person under section 43." Initially a notice of assessment or re-assessment under s.   34(1) against a person deemed to be an agent of a non- 77 resident  person under s. 43 could not be issued  after  the expiry  of one year from the end of the year of  assessment: under  the amended section this period was extended  to  two years from the end of the relevant assessment year.  In  the course of assessment to income-tax for the year 1954-55  the relevant   law  applicable  prescribed  that  a  notice   of assessment or re-assessment against a person deemed to be an agent  under s. 43 could not be issued after the  expiry  of one  year from the end of the assessment year.  That  period expired  on  March 31, 1956, and after that date  no  notice could  be  issued, relying upon the law as it  stood  before amendment  for  assessment  or  re-assessment  treating  the assessee as an agent of a non-resident under s. 43.  But the Income-tax Officer sought recourse to the amended  provision which  gave  him a period of two years from the end  of  the assessment year, for initiating assessment proceedings,  and the  authority  of  the  Income-tax Officer  to  so  act  is challenged by the assessee. Section  18  of  the Finance Act, 1956,  is,  it  is  common ground,  not given retrospective operation before  April  1, 1956.  The question then is, whether the Income-tax  Officer may issue a notice of assessment to a person as an agent  of a  non-resident party under the amended provision  when  the period  prescribed for such a notice had before the  amended Act  came into force expired?  Indisputably the  period  for serving a notice of re-assessment under  the unamended section had expired, and there  was  in the  Act  as it then stood, no provision for  extending  the period  beyond the end of one year from the year of  assess- ment.   The  Income-tax Officer could therefore  commence  a proceeding  under  s.  34 on March 27,  1957,  only  if  the amended section applied and not otherwise.  The amendin- Act came into force after the period provided for the issue of a notice under s. 34 before it was amended had expired.  It is true  that there was no determinable point of  time  between the  expiry of the prescribed time within which  the  notice could  have  been issued against the assessee  under  s.  34 proviso  (iii)  before  it was amended.  But  there  was  no overlapping  period either.  Prima facie, on the  expiry  of the period prescribed by s. 34 as it originally stood, there was no scope for issuing a notice unless the 78 Legislature  expressly gave power to the income-tax  Officer to  issue notice under the amended  section  notwithstanding the  expiry of the period under the unamended  provision  or unless  there  was overlapping of the  period  within  which notice  could be issued under the old and the  amended  pro- vision.  But counsel for the Commissioner submitted that  at no  time was the Income-tax Officer bereft of  authority  to issue  a  notice under s. 34 of the Indian  Income-tax  Act, 1922.   He  submitted that till the mid-night of  March  31, 1956, notice could be issued in exercise of the powers  con- ferred  by  s. 34 proviso (iii) before it  was  amended  and notice  of assessment or re-assessment could also be  issued under  the  amended  provision  immediately  thereafter   in exercise  of  the powers conferred by s. 18 of  the  Finance Act, 1956.  Counsel relied upon the rule contained in s.   5(3)  of  the  General  Clauses  Act  that  unless  the contrary is   expressed,  a  Central  Act  or  Regulation  shall   be



construed as   coming into operation immediately on the expiration of the  day preceding its commencement.  It was submitted  that this is merely a statutory recognition of the rule which  is well--settled that where a statute names a date on which  it shall  come into operation, it shall be deemed to come  into force immediately on the expiration of the previous day  and the law does not take into consideration fractions of a day. Reliance was placed by counsel upon Tomlinson v.  Bullock(’) and English v. Cliff(2). In Tomlinson’s case(’) the question was  whether  an order of affiliation could be  made  on  an application  made in respect of a child born at any time  of the  day an August 10, 1872 under the Bastardy Act, 35 &  36 Vict.  c.  65.   In  an application made  for  an  order  of affiliation, it was held that the order could competently be made  in respect of a child born at any time of the  day  on the   10th  of  August,  1872,  because  the  Act   in   the contemplation of law for this purpose came into effect  from the  commencement of the day on which it received the  royal assent, and that normally an Act which comes into  operation becomes law as soon as it commences. In English v. Cliff (2) it was held by the Court of Chancery (1) (1879) 4 Q.B.D. 230 (2)  (1914) 2 Ch. D. 376 79 that  the trustees under a deed of settlement dated May  13, 1892,  who stood possessed of an estate during the  term  of twenty-one  years from the date of settlement upon trust  to apply  the rents and profits mentioned therein and who  were authorised at the expiration of the said period to sell  the estate  could competently sell it and their action  was  not liable  to  be  challenged as infringing the  rule  of  per- petuity.  It was held in that case that the determination of the  term of twenty-one years and the conunencement  of  the trust for sale arising at one and the same moment, the trust was  not  void  for remoteness on the  ground  that  it  was limited  to  take  effect at the  expiration  of  the  term. Neither of these cases has, in our judgment, any application to the principle applicable in the present case.  The  power to issue a notice under the unamended Act came to an end  on March  31, 1956.  Under that Act no notice could  thereafter be  issued.  It is true that by the amendment made by s.  18 of  the Finance Act, 1956, a notice could be  issued  within two  years from the end of the year of assessment.  But  the application  of the amended Act is subject to the  principle that unless otherwise provided if the right to act under the earlier statute has come to an end, it could not be  revived by  the  subsequent amendment which extended the  period  of limitation.   The right to issue a notice under the  earlier Act  came  to  an end before the new Act  came  into  force. There was undoubtedly no determinable point of time  between the  expiry of the earlier Act and the commencement  of  the new  Act;  but that would not, in our judgment,  affect  the application of this rule. Reliance  was  also placed by counsel for  the  Commissioner upon  the rule which has prevailed in the Supreme  Court  of the  United States of America that "a new statute should  be construed  as  a  continuation  of  the  old  one  with  the modifications contained in the new one, although it formally repeals  the old statute, when it re-enacts its  substantial provisions and the two statutes are almost identical."  Bear Lake  & River Water Works & irrigation Company  and  Jarvis- Conklin Mortgage Trust Company v. William Garland and  Corey Brothers & Co.(’). It appears (1)  I64 U.S. 1



80 to  have been recognised in the Supreme Court of the  United states  of America in Pacific Mail S. S. Co.  v.  jolifee(1) that   repeal  in  terms  of  a  former  statute  does   not necessarily indicate an intention of the legislature thereby to  impair  right which had arisen under the act  which  was repealed.   As  the provisions of the new  act  took  effect simultaneously  with the repeal of the old one, the  Supreme Court  held that the new one might more properly be said  to be substituted in the place of the old one, and to  continue in force, with modifications, the provisions of the old act, instead of abrogating or annulling them and re-enacting  the same  as  a new and original act.  Apart from  the  question whether  the  rule  so  enunciated  is  applicable  to   the interpretation  of Indian statutes, in this case we are  not concerned  with  re-enactment  of a  statute.   The  statute abrogates  one rule of limitation, and enacts  another  rule with a limited retrospective operation.  To such a case  the rule enunciated by the Supreme Court of America, assuming it applies,  attributing  to the Legislature  an  intention  to continue  in  force the provisions of the old  Act,  with  a modification, so as to give to the new statute in  substance operation  retrospectively  from the date on which  the  old statute  was  enacted, can have no application.  We  do  not think  that  any  such intention may be  attributed  to  the Legislature in enacting s. 18 of the Finance Act, 1956 so as to  make it the basis of a liability to taxation  after  the expiry  of  the  period prescribed in  that  behalf  by  the Legislature-. Counsel  also  submitted  that s. 34 lays  down  a  rule  of limitation  for commencing an action for assessment  or  re- assessment, and that in the absence of an express  provision to  the contrary, a statute of limitation in operation at  a given  time governs all proceedings from the moment  of  its enactment,  even  though the cause of action  on  which  the proceeding was based came into existence before the Act  was enacted.   Equating a proceeding under s. 34 of  the  Indian Income-tax Act with a suit or a proceeding in a civil court, counsel  said  that  the law of limitation being  a  law  of procedure, assessment proceedings including proceedings  for re-assessment are governed by the law in force (1)  69 U.S. (2 Wall) 459 81 at the date on which they are instituted, and that the rule that the repeal     of  a statute without express  words  or clear implication in the repealing statute, cannot take away a right vested in     a  party  acquired  under  the  repealed statute when it was in force, is a rule of prescription and not of procedure,  and notwithstanding general observations to  the contrary in certain decisions, applies only to those actions in  which by the determination of the period  prescribed,  a right  to institute an action for possession of property  is extnguished.   Counsel  relies  in support of  the  plea  on Baleswar  v. Latafat(1).  It is unnecessary to  dilate  upon this argument in any detail, or to enter upon an analysis of the  numerous  cases  which were mentioned  at  the  Bar  to determine  whether  the rule that without  an  express  pro- vision,  or  a clear implication arising from  the  amending statute  rights acquired under the repealed statute  by  the determination of the period of limitation prescribed thereby cannot be deemed to be revived, applies to suits for posses- sion only.  It may be sufficient to make two comments on the argument.  The rule has in fact been applied to suits  other



than  suits  for  possession: e.g.  Mahomed  Mehdi  Faya  v. Sakinabai(2) (a suit for restitution of conjugal rights); M. Krishnaswami Nalcker v. A. Thiruvengada Muddaliar(3) (a suit for  recovery  of a debt); Shambhoonath  Saha  v.  Guruchurn Lahiri (4) (an application for execution); and Nepal Chandra Roy Chowdhury v. Niroda Sundari Ghose(5) (an application for setting aside an ex parte decree).  Again soon after it  was delivered  the  the  authority  of  Baleswar’s  case(’)  was weakened by the judgment in Jagdish v. Saligram(6) where the Court doubted the correctness of the earlier view. A  proceeding for assessment is not a suit for  adjudication of a civil dispute.  That an income-tax proceedings it;  the nature of a judicial proceeding between contesting  parties, is  a  matter  which  is not capable  of  even  a  plausible argument.  The Income-tax authorities who have power to assess and recover tax are notacting as judges deciding a      (1) I.L.R. 24 Pat. 249   (2) I.L.R. 37 Bom. 383      (3) A.I.R. (1935) mad. 245(4) I.L.R. 5 Cal. 894      (5) I.L.R. 39 Cal. 506   (6) I.L.R. 24 Pat. 391 51 S.C.-6. 82 litigation  between  the citizen and the  States:  they  are administrative  authorities whose proceedings are  regulated by statute, but whose function is to estimate the income  of the taxpayer and to assess him to tax on the basis of that estimate.      Tax  legislation necessitates the setting  up of machinery to ascertain the taxable income, and to assess tax on the     income,   but  that  does  not  impress   the proceeding with the character of an action between the citizen and  the State: The Commissioner of Inland Revenue v. Sneath(1);  and Shell  Company of Australia Ltd. v. Federal Commissioner  of Taxation(’). Again  the period prescribed by s. 34 for assessment or  re- assessment  is not a period of limitation.  The  section  in terms  imposes  a fetter upon the power  of  the  Income-tax Officer  to  bring  to tax escaped  income.   It  prescribes different periods in different classes of cases for enforce- ment  of  the  right of the State to recover  tax.   It  was observed by this Court in Ahmedabad Manufacturing and Calico Printing  Co.  Ltd. v. S. C. Mehta. income-tax  Officer  and another(’): "It must be remembered that if the Income-tax Act prescribes a  period during which tax due in any particular  assessment year may be assessed, then on the expiry of that period  the department  cannot make an assessment.  Where no  period  is prescribed  the assessment can be completed at any time  but once  completed  it is final.  Once a final  assessment  has been  made,  it can only be reopened to  rectify  a  mistake apparent from the record (s. 35) or to reassess where  there has  been  an  escapement of assessment of  income  for  one reason of another (s. 34).  Both these sections which enable reopening of back assessments provided their own periods  of time  for action but all these periods of time, whether  for the  firs assessment or for rectification, or  for  reassess ment, merely create a bar when that time passe( (1) 17 T.C. 149) 164 (2) [1931) A.C. 275             (3) [1963] SUPP. 2 S.C.R. 92,117-118 83 against  the machinery set up by the Incometax Act  for  the assessment  and  levy  of the tax.  They do  not  create  an exemption  in favour of the assessee or grant an  absolution on  the  expiry  of  the  period.   The  liability  is   not



enforceable but the tax may again become exigible if the bar is   removed  and  the  taxpayer  is  brought   within   the jurisdiction of the said machinery by reason of a new power. This  is, of course, subject to the condition that  the  law must say that such is the jurisdiction, either expressly  or by  clear implication.  If the language of the law has  that clear  meaning, it must be given that effect and  where  the language  expressly so declares or clearly implies  it,  the retrospective   operation   is  not   controlled   by   the. commencement clause." Counsel  for the Commissioner sought to derive some  support from Income-tax Officer, Companies District I, Calcutta  and another  v.  Calcutta  Discount  Company  Ltd.(’)  in  which Chakravartti C.J., dealing with the effect of the Income-tax and Business Profits Tax (Amendment) Act, 1948, observed: "The plain effect of the substitution of the new s. 34  with effect  from  30th March, 1948 is that from  that  date  the Income-tax  Act is to be re-ad 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 coming within cl. (a) of sub-s. (1) are  concerned all  assessment  years ending within eight years  from  30th March,  1948  and  from subsequent  dates,  are  within  its purview and it will apply to them, provided the notice  con- templated  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 30th March, 1948. (1)  23 I.T.R. 471 84 But  it may be recalled that the amending Act of  1948  with which the Court was concerned in Calcutta Discount Company’s case(1)  came into force on September 8, 1948, but  s.  1(2) prescribed  that  the amendment in s. 34 of  the  Income-tax Act, 1922, shall be deemed to have come into force on  March 30, 1948, and the period under the unamended section  within which  notice  could be issued under s.  34(3)  against  the assessee company ended on March 31, 1951.  Before that  date the amending Act came into operation, and at no time had the right to re-assess become barred. In  considering  whether the amended  statute  applies,  the question is one of interpretation i.e., to ascertain whether it  was  the  intention  of the  Legislature  to  deprive  a taxpayer  of  the  plea that action for  assessment  or  re- assessment could not be commenced, on the ground that before the amending Act became effective, it was barred.  Therefore the view that even when the right to assess or re-assess has lapsed on account of the expiry of the period of  limitation prescribed under the earlier statute, the Income-tax Officer can  exercise  his powers to assess or re-assess  under  the amending   statute  which  gives  an  extended   period   of limitation, was not accepted in Calcutta Discount  Company’s case(’). As  we  have already pointed out, the right  to  commence  a proceeding  for assessment against the assessee as an  agent of  a non-resident party under the Income-tax Act before  it was amended, ended on March 31, 1956.  It is true that under the  amending  Act  by  s. 18  of  the  Finance  Act,  1956, authority  was  conferred  upon the  Income-tax  Officer  to assess  a person as an agent of a foreign party under s.  43 within  two  years from the end of the year  of  assessment. But authority of the Income-tax Officer under the Act before it  was  amended by the Finance Act of 1956  having  already come  to an end, the amending provision will not assist  him to  commence  a proceeding even though at  the  date  whenhe issued  the notice it is within the period provided by  that



amending  Act.   This will be so, notwithstanding  the  fact that  there has been no determinable point of  time  between the expiry of the time provided under the old Act and the (1)  23 I.T.R. 471. 85 commencement of the amending Act.  The Legislature has given to  s.  18  of  the  Finance  Act,  1956,  only  a   limited retrospective  operation  i.e., upto April  1,  1956,  only. That provision must be read subject to the rule that in  the absence  of an express provision or clear  implication,  the Legislature  does  not intend to attribute to  the  amending provision   a  greater  retrospectivity  than  is   xpressly mentioned,  nor  to  authorise  the  Income-tax  Officer  to commence  proceedings  which before the new  Act  came  into force  had  by  the expiry of the  period  provided,  become barred. The appeal fails and is dismissed with costs. Appeal dismissed.