Mahadeo Prasad Bais Vs Income Tax Officer

2. The original assessments made on the Appellant as an individual for the assessment years 1953-54 to 1961-62 had been completed under the 1922 Act. In these assessments no income from the erstwhile joint family properties had been included as the officer was of the view, as in 1949-50, that it was assessable in the hands of the family. There were no proceedings initiated or pending u/s 34 of the 1922 Act in respect of these assessment years as on 1-4-1962. Quite sometime after the High Court had decided the reference for 1949-50 in the case of the family, the ITO thought of steps to include the income assessable in the hands of the Appellant consequent on the decisions of the Tribunal and the High Court which he had failed to assess earlier. He, therefore, served on the Appellant on 19-3-1977 notices for reassessment, as required by Section 291(2)(d)(ii), u/s 148 of the 1961 Act. The Appellant resisted these proceedings, inter alia, on the ground that the notices were barred by limitation. The department, however, contended that though normally reassessment proceedings had to be initiated within a period of four, eight or sixteen years, as the case may be, under the then provisions of Section 149 of the Act, the reassessment proceedings in this case were saved by the provisions of Section 150(1) set out earlier. This contention of the department has been accepted by the High Court in the decision under appeal before us which is in Mahadeo Prasad Rais v. ITO (1980) 125 ITR 49 (All.).

3. The issue involved in this appeal is basically a short one turning on the language of Section 150(1). Before considering the interpretation of this Section, we may, however, point out that, on this question, there appears to be a conflict of judicial opinion between the several High Courts. The Allahabad High Court, in the decision presently under appeal-Mahadeo Prasad Rais' case (supra) and the Calcutta High Court in Income Tax Officer, "A" Ward and Others Vs. Eastern Coal Co. Ltd. (In Liquidation), have taken the view that a reassessment in such circumstances is saved by the provisions of Section 150(1). An earlier Allahabad High Court decision in Addl. CIT v. Kamlapat Moti Lal (1911) 110 ITR 769 and an earlier Bombay High Court decision in Ambaji Traders P. Ltd. Vs. Income Tax Officer, Central Circle (III), Nagpur, took a similar view on the analogous provision contained in Section 153(3) but a contrary view was taken by the latter High Court in Commissioner of Income Tax, Bombay City I Vs. T.P. Asrani, . Both sets of decisions have placed reliance on certain observations of this Court in differing contexts. But it will be best to have a look at the statutory provisions first, in the context of the facts of the present case.

4. To start with, there is no dispute that reassessment proceedings were rightly initiated u/s 148. It is also common ground that on the language of Section 148, as it stood at the relevant time, no notice u/s 148 could have been issued in March 1977 for the assessment years in question. The revenue can successfully support the validity of this notice only by reference to Section 150(1). Two questions then arise : (i) Are the provisions of Section 150(1) attracted ? (ii) If yes, do they save the impugned proceedings? The answer to the first question is furnished by Section 297(2)(d)(h), the very clause which authorises the issue of the notice of reassessment u/s 148. It permits the issue of the notice u/s 148, 'subject to the provisions contained in Section 149 or Section 150'. Though the words 'subject to' may be appropriate in the context of Section 149 and Section 150(2) (which place restrictions on the issue of the notice u/s 148), they are somewhat inappropriate apropos Section 150(1) which relaxes the conditions for issue. But there is no doubt that the statute clearly intends that the benefit of enlargement of the time limited u/s 149 should be available in respect of the notice issued u/s 148 read with Section 297(2)(d)(h). The answer to the second question is furnished by Section 150(1) itself. It removes the bar of time when the reassessment proceedings are initiated in consequence of or to give effect to a finding contained in an order passed by any authority in any proceeding by way of appeal, reference or revision. There is no difficulty here for the orders of the Tribunal and the High Court for the several years between 1949-50 and 1961-62 were passed in proceedings by way of appeals and reference and there is no dispute that the reassessment proceedings have been initiated to give effect to findings in such orders. There is, however, a catch in applying the terms of Section 150(1) to this case. There is no doubt that the whole idea of the sub-section was to lift the embargo placed on initiation of reassessment proceedings and to remove the time limit where the notice of reassessment is issued with a view to give effect to a direction or finding contained in an appellate order or an order passed on revision or on reference. Unfortunately, however, in expressing its above intention, the Legislature has worded the exemption from time limit so as to cover only cases where the finding or direction is contained in an order passed by any such authority in any such proceeding 'under this Act', i.e., the Act. In the present case, the assessments for 1949-50 arid subsequent years in the case of the family were made under the 1922 Act and were the subject-matters of appeal to the AAC and the Tribunal and of reference to the High Court under the provisions of the 1922 Act. In other words, the finding in consequence of which the assessments presently under consideration are being sought to be reopened is a finding contained in orders passed not 'under this Act' but in orders passed under the 1922 Act. Literally applied, therefore, the language of Section 150(1) does not help the department to overcome the bar of limitation otherwise imposed by Section 149.

5. Pressing for the literal construction of the sub-section, it is contended for the Appellant that there are good reasons why this construction should be accepted:

(1) To accept the contention of the department would mean the virtual deletion of the words 'under this Act' from Section 150(1);

(2) It seems clear that the above words have not been inadvertently used in the statute. If one turns to Section 153(3), which is an extension of Section 150(1) removing the time bar for the completion of reassessments initiated for the same purpose, the Legislature goes further than Section 150(1) and makes specific reference to particular provisions of the 1961 Act;

(3) The provisions of Section 150(1) will not become redundant if read in the manner contended for by the Assessee. While, no doubt, the proceedings are initiated, in all cases covered by Section 297(2)(d)(ii), under the 1961 Act, the orders for giving effect to a finding or direction in which such proceedings are initiated, may belong to either category-they may be orders passed under the 1922 Act or they may be orders passed under the new Act. The terms of Section 150(1) will be effective in the latter category of cases; and

(4) The provisions contained in Sections 150(1) and 153(3) are provisions exempting the applicability of a normal rule of limitation otherwise applicable to actions for reassessment and such provisions should be construed strictly.

On the other hand, it is contended for the department that the object of the provision being very obvious, namely, that where reassessment proceedings are initiated to give effect to orders on appeal, reference or revision, there should be no time limit tying down the hands of the Revenue as such orders are seldom likely to be passed within the limits of time mentioned in Section 149, we should give effect to the clear intention of the Legislature and should not frustrate its object. It is, therefore, necessary to examine the provisions of Section 297(2)(d)(ii) and Section 150(1) a little more closely and examine which of the two interpretations is preferable.

6. Taking up the Appellant's interpretation first, it has no doubt the attractiveness of simplicity. It is a strict and literal interpretation of Section 150(1). The learned Counsel drew our attention to the fact that the decided cases have referred to certain decisions of this Court in this context. We do not, however, think that the decisions of this Court in Mr. S.B. Jain, I.T.O., Nagpur Vs. Mahandera, and Govind Das and Others Vs. The Income Tax Officer and Another, cited by Appellant's counsel are of any assistance to them. In the former case, a notice u/s 34 had been issued before 1-4-1962 but it had been quashed as without jurisdiction as it was barred by time. The question was whether the proceedings initiated by the notice can be said to have been pending as on 1-4-1962, The Court answered the question in the affirmative. It held that, for purposes of Section 297(2)(d)(ii), all that had to be seen was whether proceedings u/s 34 were factually pending on 1-4-1962. That the notice issued before that date was barred by time and was held so later was immaterial. The notice had in fact been quashed by the High Court in a writ only much later, on 6-3-1963, and so proceedings u/s 34 were pending as on 1-4-1962. We are unable to see how this decision is of any help here. In the second case, the claim by the Assessee, a HUF that there had been a partial partition on 15-11-1955 (as a result of which the share income from two firms had ceased to be the income of the family from that date) was accepted by the ITO. Subsequently, the assessments of the two firms for the assessment years 1950-51 to 1956-57 had been reopened and reassessments were made on them enhancing their income. Consequently, action was also taken to reopen the assessments of the family (which, for the relevant previous years had a share in the firms' income). These assessments were initiated under the new Act in accordance with the provisions of Section 297(2)(d)(ii). The Assessee had no grievance thus far. But, while completing the reassessment, the officer, in addition to reassessing the family, also took advantage of the provisions enacted in Section 171(6) and (7) which had no counterpart in the 1922 Act and passed orders apportioning the tax assessed on the family amongst its members. This was objected to by the Assessee. The department, referring to the language of Section 297(2)(d)(ii) 'that all the provisions of this Act shall apply accordingly', contended that the ITO could legitimately invoke the provisions of Section 171(6) and (7) as well while making the reassessments. This contention was negatived. The Court observed :

These words merely refer to the machinery provided in the new Act for the assessment of the escaped income. They do not import any substantive provisions of the new Act which create rights or liabilities. The word 'accordingly' in the context means nothing more than 'for the purpose of assessment' and it clearly suggests that the provisions of the new Act which are made applicable are those relating to the machinery of assessment. (p. 134)

It will be at once clear that this line of approach can have no validity in the context of Section 297(2)(d)(ii). Here there is no need to guess or speculate on which provisions of the 1961 Act are to apply. The section itself, in so many words, provides that Sections 148, 149 and 150 will apply to the initiation of a reassessment proceeding u/s 297(2)(d)(ii) and this cannot be negatived by the last few words of that clause. On the contrary, as pointed out earlier, they place it beyond all doubt that the provisions of the Act have to be applied to the reassessment on the basis that Sections 148 to 150 apply. This case also does not, therefore, advance the case of the Assessees.

7. It is next contended by the Appellant's counsel that the very issue before us has been considered in the decision of this Court in R.B. Seth Gujar Mal Modi and Others Vs. The Commissioner of Income Tax , Punjab and Another, and this concludes the issue in his favour. The second head note at page 261 seems to bear out this contention. It reads :

. . . since the Appellate Assistant Commissioner's order was not passed under the 1961 Act, the department could not take any support from Section 150(1) of the 1961 Act. (p. 261)

A perusal of the decision shows, indeed, that this was the ground on which a separate contention urged on behalf of the department on the basis of Section 150(1) was repelled. It is no doubt seen from the facts of the case that it was a case of reassessment u/s 297(2)(d)(i) and the Court specifically held that reassessment proceedings should have been initiated u/s 34 of the 1922 Act and not u/s 148 of the 1961 Act. In view of this conclusion no question of drawing any support from Section 150(1) could at all arise. Still an argument was addressed and was repelled on the basis of the words 'under this Act' used in Section 150(1) thus upholding the literal construction argument now addressed on behalf of the Assessee. We shall consider this decision later after considering the department's contentions.

8. As against the above contentions, Shri Manchanda submits that the provisions of Section 150(1) should be applied not blindly but with necessary modifications to suit the situation, hi support of this plea, he relies strongly on the last few words of Section 297(2)(d)(ii). It is urged that the expression: 'all the provisions of this Act shall apply accordingly' should be so construed as to enable the revenue to invoke reassessment proceedings on the footing that the orders on appeal or reference were ones passed 'under this Act' within the meaning of Section 150(1). Shri Manchanda cited two decisions in support of his contention. In Third Income Tax Officer, Mangalore Vs. M. Damodar Bhat, the question was whether proceedings u/s 226(3) would apply with respect to a tax liability incurred under the 1922 Act. The answer to this question, in the affirmative, turned on the language of Section 297(2)(j) which provided that any tax or other dues payable under the 1922 Act may, notwithstanding the repeal of the 1922 Act, be recovered under the Act. The contrary interpretation accepted by the High Court in that case would have had the effect of nullifying the provisions of Section 297(2)(j). Again, in Jain Bros. and Others Vs. The Union of India (UOI) and Others, it was held that a penalty could be imposed u/s 271(1) of the Act in respect of returns filed before 1-4-1962 and assessments completed after 1-4-1962 but under the 1922 Act. This was because of Section 297(2)(g), the special transitory provision in this behalf, which provided that 'any proceeding for the initiation of a penalty in respect of any assessment for the year ending on 31-3-1962, or any earlier year, which is completed on or after 1-4-1962, may be initiated and any such penalty may be imposed under this Act'. Here again, Section 297(2)(g) had been enacted to provide for the exact situation in question and to have held to the contrary would have rendered the provisions of Section 297(2)(g) meaningless and redundant.

9. The position is, no doubt, a little different here. The provisions of Section 150(1) have been specially made applicable and operative in respect of the notice u/s 148 issued in pursuance of Section 297(2)(d)(ii) and, as pointed out earlier, the application of the provisions of Section 297(2)(d)(ii) gives rise to two sets of situations to one of which the language of Section 150(1) would squarely apply and so the interpretation sought for by the Appellant does not render the words of Section 150(1) redundant. Despite this point of difference in the two situations, we think that the principle of the above decisions that the mutatis mutandis rule should be invoked in interpreting Section 297(2) has application here also. Not to do so would, no doubt, not make Section 150(1) redundant but it will bring about an unintended and inequitable situation. It is clear that Section 150(1) will operate to lift the time bar in cases where the reassessment is initiated u/s 148 to give effect to an order passed under the Act. Equally, where assessments had been reopened u/s 34 before 1-4-1962 to give effect to orders passed under the 1922 Act and are continued after that date by virtue of Section 297(2)(d)(i), the provisions of the second proviso to Section 34(3) would preclude the operation of the normal rule of limitation for reassessments. In this situation, it will be a great anomaly to reach the conclusion that the time limit will operate in cases where proceedings u/s 148 are initiated to give effect to an order on appeal, revision and reference merely because such order is one passed under the 1922 Act. Neither reason nor rhyme can explain how the statute could have intended such anomaly or why it should be so interpreted as to result in a discriminatory treatment only to this class of cases. An interpretation which will result in such anomaly or absurdity should be avoided. It is also necessary to remember that Section 297(2) is a provision enacted with a view to provide for continuity of proceedings in the context of a repeal of one Act by a fresh one broadly containing analogous provisions and the transitory provisions should, as far as possible, be construed so as to effect such continuity and not so as to create a lacuna. For these reasons we think that it will be appropriate to so read the words of Section 291(2)(d)(ii) as to permit the applicability of Section 150 (or Section 153) with the necessary modifications. To paraphrase, the last words of Section 297(2)(d)(ii) should be read to mean that where the proceedings are initiated u/s 148, subject to the relaxations and limitation of Sections 149 and 150, all the provisions of the Act shall apply accordingly: that is to say, in the same manner as they would apply in case of proceedings normally initiated under these provisions. Since reassessment proceedings so initiated to give effect to orders on appeal, revision or reference will not be subject to a time limit, the proceedings likewise initiated u/s 297(2)(d)(ii) read with Section 148 will also not be subject to any limitations save to the extent mentioned in Section 150(2).

10. We would like to add that, even if Section 150(1) is to be read literally and considered as posing a hurdle as contended for by the Appellant, we think this result can be overcome by a liberal interpretation of Section 297(2)(k). This clause reads :

297. Repeals and Savings.-- (1) ******

(2) (a) to (j)******

(k) any agreement entered into, appointment made, approval given, recognition granted, direction, instruction, notification order or rule issued under any provision of the repealed Act shall, so far as it is not inconsistent with the corresponding provision of this Act, be deemed to have been entered into, made, granted, given or issued under the corresponding provision aforesaid and shall continue in force accordingly;

This is principally a provision intended to save administrative steps taken under the 1922 Act by deeming them to be steps taken under the 1961 Act. Strictly construed, the words 'order issued' also would seem, prima facie, to carry only a similar connotation. But we see no objection, for our present purposes, in the way of our construing these words liberally and consequently deeming the orders passed and issued by the Tribunal and the High Court in this case for the assessment year 1949-50 and subsequent assessment years as orders passed or issued under the corresponding provisions of the Act. Once this deeming is made, there is no difficulty in the way of accepting the revenue's contention. We think that the circumstances justify a slight straining of the language of this clause and applying it so interpreted to the problem before us so as to avoid a meaningless anomaly. Thus, construed, the statute can be said not to have misfired in its application to the situation in the present case.

We should, before we conclude, refer to the decision of this Court in the Gujar Mai Modi case. As we have pointed out earlier, the principal conclusion reached in that case in that case was that proceedings u/s 148 could not have been initiated as the case fell under the provisions of Section 297(2)(d)(ii) it was, therefore, unnecessary to deal with the contention based upon Section 150. Moreover, this part of the decision was only based on a prima facie reading of Section 150(1) and contains no discussion of the various aspects that need consideration and have been touched upon above. We do not, therefore, think that the above decision can be treated as conclusive on the issue before us which, for the reasons discussed above, we think, should be answered differently.