1979-VIL-632-BOM-DT

Equivalent Citation: [1980] 122 ITR 735, 11 CTR 298, 1 TAXMANN 552

BOMBAY HIGH COURT

Date: 16.01.1979

COMMISSIONER OF INCOME-TAX, BOMBAY CITY I

Vs

TP. ASRANI

BENCH

Judge(s)  : CHANDURKAR., DESAI 

JUDGMENT

The judgment of the court was delivered by

DESAI J.--A short but interesting question arises in this reference which is at the instance of the Commissioner under s. 256(1) of the I.T. Act, 1961. The question which stands referred to us reads as follows :

" Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the Appellate Assistant Commissioner was devoid of power to invoke Explanation 2 to section 153 of the Act in the instant case ? "

A few facts may be stated :

The assessee is an individual who migrated to India in 1947 as a refugee consequent upon the partition of India. In Karachi, he was the proprietor of an export and import business carried on by him in the name and style of Indian Traders. He was also a railway contractor. According to him, prior to his departure from Pakistan, he had sold away all his assets and brought into India an amount of Rs. 55,000 in cash. This contention of the assessee, viz., that he had brought a sum of Rs. 55,000 from Pakistan was the subject-matter of a dispute between the assessee and the department, which dispute was ultimately resolved by the Income- tax Appellate Tribunal in relation to the appeals for the assessment years 1952-53, 1956-57 and 1957-58. The Tribunal accepted this statement of the assessee. Thereafter the customs authorities raided a locker which stood in the name of the assessee with the Punjab National Bank Ltd. and discovered a cash amount of Rs.47,000 therein. Thereupon, criminal proceedings were started against the assessee, which ultimately resulted in his conviction for contravention of the Foreign Exchange Regulation Act,1947. However, the amount of Rs. 47,000, which had been seized by the Customs authorities, was released by the First Class Magistrate, Central II, Delhi. The ITO, however, received the necessary information and on the basis of such information he included the said amount of Rs. 47,000 in the assessment of the assessee for the assessment year 1956-57 ; the amount was included under the head " Other sources ".

The assessee carried the matter in appeal to the AAC, and in that appeal the AAC held that the amount of Rs. 47,000 should be treated as income for the assessment year 1957-58 and as such this amount was added by him to the income for the assessment year 1957-58 after issuing notice of enhancement.

The assessee carried the matter in further appeal to the Income-tax Appellate Tribunal. The Tribunal held that the amount of Rs. 47,000 could only be considered in the assessment year 1958-59 inasmuch as the impugned amount was required to be considered as income from undisclosed sources.

After this decision of the Tribunal, the ITO, acting under s. 1 47, issued a notice to the assessee for the assessment year 1958-59, which is the year with which we are concerned in this reference. For the said year reassessment proceeding was completed and in the said proceeding the income of the assessee was redetermined at Rs. 57,085, which included the said sum of Rs. 47,000, under the head " Income from undisclosed sources ". On merits, the contentions raised by the assessee were rejected.

From the order of the ITO an appeal was preferred to the AAC. The assessee's first contention before the AAC was that the initiation of the proceedings under s. 147 was bad in law. It was submitted that all the materials were originally made available to the ITO and no fresh information came into his possession for the assumption of power under s. 147. The AAC agreed with the assessee that s. 147(a) could not be invoked in this case. The AAC then considered whether the reassessment proceedings were in time. For the purpose of this argument, he considered the provisions contained in s. 153 of the I.T. Act, 1961. In his view the action of the ITO for reassessment was directly in consequence of the Tribunal's order for the earlier years. If that was so, then, according to the AAC, by reason of s. 153(3), the time-limit as provided under s. 153(1) would not apply. In this connection on behalf of the assessee the attention of the AAC was drawn to the decision of the Supreme Court in ITO v. Murlidhar Bhagwan Das, [1964] 52 ITR 335. It was urged that Expln. 2 to sub-s. (3) of s. 153 will not be applicable to the appeal being considered by the AAC. It was pointed out that in s. 153(3)(ii) specific sections of the I.T. Act, 1961, have been mentioned ; and that since the order of the Tribunal, pursuant to which the reassessment proceedings had been initiated, was not under the new Act but under the old Act, the Explanation could not be pressed into service. The AAC, however, rejected this argument, holding that by reason of the provisions of s. 297(2)(k) of the I.T. Act, 1961, the direction given by the Tribunal must be deemed to be one given under comparable or equivalent section of the new Act.

The assessee carried the matter in further appeal to the Tribunal. Before the Tribunal the assessee urged that the AAC was totally in error in the view he took of the provisions of s.297(2)(k) of the Act of 1961, by reason of which he applied Expln. 2 to s. 153(3). The Tribunal upheld this contention, holding that the AAC had wrongly pressed into service Expln. 2 to s. 153(3). The Tribunal further held that since the original assessment was made under the provisions of the old Act and had become final, the AAC had exceeded his jurisdiction in sustaining the order of the ITO. It did not dilate over the other contentions of the assessee. In the view that it had taken, the Tribunal allowed the appeal of the assessee and held that the reassessment was beyond the period prescribed in s. 153(1). Being aggrieved by the said decision of the Tribunal, the Commissioner has preferred this reference.

In our opinion, the question referred to us may be reframed as follows :

" Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Explanation 2 to section 153 of the Income-tax Act, 1961, was not applicable ? "

Mr. Joshi, on behalf of the Commissioner, stated that this Explanation, i.e., Expln. 2 to s.153, was enacted in order to mitigate the difficulties caused to the revenue as a result of the decision of the Supreme Court in Murlidhar Bhagwan Das's case [1964] 52 ITR 335. The said case was decided under the Indian I.T. Act, 1922. In the said case certain interest income of Rs. 88,737 had been brought to tax for the assessment year 1949-50. The assessee appealed and the AAC held that the income was received in the previous accounting year, and directed that the amount should be deleted from the assessment for the year 1949-50 and included in the assessment for the year 1948-49. Pursuant to this direction, the ITO initiated reassessment proceedings under s. 34(1) of the Indian I.T. Act, 1922, in respect of the year 1948-49 and served a notice on the assessee on 5th December, 1957. The question was whether the second proviso to s. 34(3) applied and saved the notice which was served beyond the time prescribed by s. 34(1). The Supreme Court held, by a majority, that the assessment or reassessment made in consequence of or to give effect to any finding or direction contained in an order under s. 31, s. 33, s. 33A, s. 33B, s. 66 or s. 66A must necessarily relate to the assessment of the year under appeal, revision or reference, as the case may be. In this view of the matter, it was held further that the second proviso to s. 34(3) only lifted the bar of limitation and did not enlarge the jurisdiction of the Tribunal under the relevant sections. In the view of the Supreme Court, the expressions " finding " and " direction " in the second proviso to s. 34(3) could only be those which were necessary for. the disposal of an appeal, revision or reference in respect of an assessment of a particular year. On the facts of the case before the Supreme Court, it was held that the decision of the AAC, that the income shown by the assessee was not the income for the relevant year and was, therefore, liable to be included, was a " finding ". The AAC, according to the Supreme Court, may incidentally hold that the income belonged to another year, but this could not constitute a " finding " as it was not one necessary for the disposal of an appeal in respect of the year of assessment in question. In this view of the matter, it was held that the second proviso to s. 34(3) did not save the time-limit prescribed under s. 34(1) in respect of an escaped assessment of an year other than that which was the subject-matter of the appeal or revision, as the case may be. Accordingly, the notice issued in that case was held as barred by limitation and declared not to be saved by the second proviso to s. 34(3).

Under the Indian I.T. Act, 1922, all these provisions were to be found in s. 34, which had the heading " Income escaping assessment ". Section 147 is the equivalent section under the 1961 Act, which primarily deals with income escaping assessment and contemplates two broad classes of cases for initiation of reassessment proceedings. This section is then followed by several procedural sections pertaining to issue of notice, the time-limit for the notice, sanction for issue of notice and other provisions. Sections 149 and 150 provide for time-limit for the issue of notice of reassessment and s. 158 prescribes the time-limit for making an order of assessment. The time-limit for the issue of notice under s. 149 need not be mentioned as it is not relevant for our purposes. But it may be stated that the period prescribed has been changed from time to time by necessary amendments. Section 150(1), however, provides for relaxation of this time-limit for the issue of notice under certain circumstances ; this is provided as under :

" 150. (1) Notwithstanding anything contained in section 149, the notice under section148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision."

Under s. 153(2) time-limits are similarly prescribed for assessment, reassessment or recomputation under s. 147. But s. 153(3) of the 1961 Act, which is comparable to the second proviso to s. 34(3) of the 1922 Act, provides as follows :

"153. Time-limit for completion of assessments and reassessments.--............

(3) The provisions of sub-sections (1) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, subject to the provisions of sub-section (2A), be completed at any time---.......

(ii) where the assessment, reassessment or computation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order, under section 250, 254, 260, 262, 263 or 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act ; ........"

However, we find a number of Explanations enacted by the legislature of which Expln. 2 is material for our purposes; the said Explanation reads as follows :

" Explanation 2.--Where, by an order referred to in clause (ii) of sub-section (3), any income is excluded from the total income of the assessee for an assessment year, then, an assessment of such income for another assessment year shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order."

It is obvious that this Explanation, i.e., Expln. 2, was enacted under the new Act to do away with the decision of the majority of the Supreme Court in Murlidhar Bhagwan Das's case [1964] 52 ITR 335.

It may be noted that factually in this case the order of the Income-tax Appellate Tribunal, pursuant to which the reassessment proceedings had been initiated by the ITO (which is annexed as annex. " A " to the statement of case) is dated 10th October, 1963, i.e., after the new Act had become effective, but will obviously be an order under s. 33 of the Act of 1922. The order of the Tribunal pertained to the assessment years 1952-53, 1956-57 and 1957-58. The reassessment proceedings pertain to the assessment year 1958-59. If the decision in Murlidhar Bhagwan Das's case [1964] 52 ITR 335 (SC) were to apply, then, the finding or direction given by the Tribunal in its order dated 10th October, 1963, could not be a finding or direction as contemplated by s. 34(3) of the Indian I.T. Act, 1922. However, if Expln. 2 to s. 153(3) were to apply, then, the decision in Murlidhar Bhagwan Das's case [1964] 52 ITR 335 (SC) would have no application, and by reason of the said Explanation the finding given by the Tribunal, although a finding given in another assessment year, would still be a finding within the meaning of s. 153(3) which would then operate so as to lift the time-limit. This then is the short question arising for our determination.

Before discussing the several authorities cited at the bar, reference may be made to the provisions under the I.T. Act, 1961, for repeal and savings, since the authorities cited mainly turn on the application of these provisions. It is also pertinent to note that the AAC had based his finding upon what was contained in s. 297(2)(k) of the Act of 1961. Section 297(1) provides simply that the Indian I.T. Act, 1922, is hereby repealed. However, there are certain savings provided for in sub-s. (2). We are concerned with cls. (d) and (k) of sub-s. (2), which may be extracted :

" 297. (2)(d) Where in respect of any assessment year after the year ending on the 31st day of March, 1940,--

(i) a notice under section 34 of the repealed Act had been issued before the commencement of this Act, the proceedings in pursuance of such notice may be continued and disposed of as if this Act had not been passed ;

(ii) any income chargeable to tax had escaped assessment within the meaning of that expression in section 147 and no proceeding under section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under section 148 may, subject to the provisions contained in section 149 or section 150, be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly."

" 297. (2)(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."

Mr. Joshi drew our attention to the decision given by the Nagpur Bench, to which decision my brother, Chandurkar J., was a party, in Ambaji Traders P. Ltd. v. ITO [1976] 105 ITR 273, where it was expressly held that the bar of limitation contained in s. 153(2) will not apply in view of the express provisions of s. 153(3)(ii). In that case, for the assessment year 1959-60, the assessee's accounts showed cash credits of over Rs.3 lakhs. The AAC held that out of this, cash credits amounting to Rs. 2 1/2 lakhs had to be excluded from the assessment year 1959-60 and had to be brought to tax in the assessment year 1958-59. Thereupon,the ITO initiated proceedings under s. 147 in January, 1967, in respect of the assessment year 1958-59. The assessee contended that the reassessment proceedings were barred by limitation. In 1970, an assessment order was passed and recovery proceedings initiated. The Tribunal set aside the order of assessment on the ground that the assessee had not been given an opportunity of being heard. One of the points, which was considered by the High Court in the petition, concerned the plea of the assessee that the reassessment proceedings were barred by limitation. This argument advanced on behalf of the petitioner is considered at page 276 onwards of the reported decision (105 ITR). It was held that the Explanation was a new provision and a deliberate departure from the 1922 Act to obviate the principle enunciated by the Supreme Court in Murlidhar Bhagwan Das's case [1964] 52 ITR 335 and subsequently re-enunciated in Sivalingam Chettiar (N.Kt.) v. CIT [1967] 66 ITR 586 (SC). In the view of the Division Bench, the effect of the Explanation is to lift the bar of limitation. It was held then that by reason of the Explanation there was no bar of limitation and accordingly the contention of the assessee was rejected. In the view of the Division Bench the ITO was entitled to take recourse to the provisions of s. 147(b) and issue the requisite notice for which there was no bar of limitation in view of the provisions of s. 153(3)(ii) read with Expln. 2.

Mr. Joshi also drew our attention to two decisions of the High Courts of Calcutta and Allahabad respectively in which a similar view was taken. It may be pointed out that the main argument which was urged by Mr. Patwa before us does not appear to have been urged before the Nagpur Bench in Ambaji Traders' case [1976] 105 ITR 273 (Bom-Nag) and the Nagpur Bench has, therefore, applied Expln. 2 without having the benefit of that argument, which has appealed to us as having considerable force. Mr. Joshi, however, submitted that the argument has been duly and fully considered in the Calcutta and the Allahabad authorities and, therefore, what has been decided in Ambaji Traders' case [1976] 105 ITR 273 (Bom-Nag) is sound law despite the fact that the argument which has been advanced before us had not been noted or considered in the said decision.

A Division Bench of the Calcutta High Court came to consider these provisions in ITO v. Eastern Coal Co. Ltd. [1975] 101 ITR 477. This was an appeal from the decision of a single judge of the Calcutta High Court (K. L. Roy J.) in Eastern Coal Co. Ltd. v. ITO, [1976] 78 ITR 700. Mr. Joshi has taken us through the decision of the learned single judge, where it may be noted that the learned single judge has mentioned the argument but has not found it further necessary to consider it in the view that he took. When the matter was carried in appeal, the question of limitation was posed before the Appellate Bench by the learned counsel for the respondent-assessee. The Division Bench first considered the provisions of s. 297(2)(d)(ii) and held that s. 150(1) of the 1961 Act would apply in respect of the notice issued under the 1961 Act even though the direction or finding on account of which the notice was issued was made under the provisions of the 1922 Act. In coming to this conclusion the Division Bench of the Calcutta High Court had noted the decision of the Supreme Court in Third ITO v. M. Damodar Bhat [1969] 71 ITR 806 and lain Brothers v. Union of India [1970] 77 ITR 107. It was urged before the Division Bench that even if its view was that s. 150(1) of the 1961 Act was applicable, the notice had become time barred. It was further submitted that Expln. 2 to sub-s. (3) of s. 153 could not be invoked in the said case. Two alternative arguments were submitted. According to the assessee, Expln. 2 dealt with a different section and, in any event, it did not in fact come into play. This argument was disposed of by the Calcutta High Court in the following words :

" Explanation 2 created a fiction by deeming an assessment to be made in consequence of an order or to give effect to a finding or direction which was not there. But there was no provision that the proceedings under the 1922 Act should be deemed to be proceedings under the new Act. But for this no fiction or deeming provision, in our opinion, is necessary because section 297(2)(d)(ii) read properly with the provisions of the new Act would apply mutatis mutandis to the present case. Therefore, even though in respect of an order passed under the 1922 Act, action could be taken under the1961 Act, the said provision would be applicable."

It was contended further by counsel for the assesee that this would result in double deeming which was not permitted. But this argument was rebutted by the Calcutta High Court which held that when a statute creates a fiction, the situation in which the fiction can work should be postulated. In that view of the matter, the Division Bench was of opinion that the action in the said case was valid and the notice could not be challenged. Thus, the view of the court was that as a result of the provisions contained in s. 297(2)(d)(ii) read properly, the provisions of the new Act were required to be applied mutatis mutandis in the said case ; and, if so applied, Expln. 2 to s. 153(3) can be pressed into service.

The Allahabad High Court had occasion to deal with a similar matter in Addl. CIT v. Kamlapat Moti Lai [1977] 110 ITR 769. In that case, the original orders of assessment of the income of the assessee-firm for the assessment years 1960-61 and 1961-62 were made on 31st March, 1964. For the meat year 1960-61, the assessee had claimed deduction of two sums of Rs. 4,49,704 and Rs. 4,18,291 as expenditure on excise duty on stocks of sugar held at its factories on the last day of the relevant previous year. This was on the basis of the mercantile system of accounting. The ITO disallowed the claim for 1960-61, but allowed the two sums as expenditure for the year 1961-62. In appeal, the AAC held that the two sums should be allowed as expenditure for 1960-61. Consequently, the ITO modified the assessment for 1960-61 by allowing the expenditure of Rs. 8,67,995 in that year. Since the very same amounts had been allowed as expenditure for the assessment year 1961-62 also, the ITO initiated proceedings under s. 147 of the 1961 Act in respect of that year and issued to the assessee on 17th March, 1969, a notice under s.148 and finally he reassessed the income for 1961-62 by adding back the aggregate amount of Rs. 8,67,995. When the matter came to the Tribunal, it was held that the reassessment proceedings for that year were barred by time and hence the reassessment was invalid. On a reference, it was contended on behalf of the department that as the reassessment was made in consequence of the finding of the AAC that the said sums were allowable towards excise duty in the assessment year 1960-61 itself, there was no time-limit for making such reassessment. The contention which was urged on behalf of the assessee, that Expln. 2 to s. 153(3) could not be looked at, was rejected by the High Court. The court considered the reason why Expln. 2 was added, and in the view of the court that was subsequent to the decision of the Supreme Court in Murlidhar Bhagwan Das's case [1964] 52 ITR 335. The court then considered the provisions of s. 297(2)(ii) of the 1961 Act. According to the Allahabad High Court, s. 297(2)(d)(ii) clearly provides that where no proceedings under s. 34 of the old Act were pending at the commencement of the present Act, i.e., the 1961 Act, a notice under s. 148 could be issued, and where such a notice was issued, it was provided that all the provisions of the present Act shall apply accordingly to the reassessment proceedings (underlining supplied). The Allababad High Court then considered the effect to be given to these words. In its view the provisions of the Act of 1961, were or the procedure of the Act of 1961 was, required to be applied mutatis mutandis, and it derived Support from the decision of the Supreme Court in M. Damodar Bhat's case [1969] 71 ITR 806 for this view. In the view that it took of these provisions, the Allahabad High Court rejected the submission of the assessee that Expln. 2 was not available to the department in respect of the appellate order of the AAC passed under the 1922 Act.

At this juncture the argument urged on behalf of the assessee before us may be briefly stated. Before doing so, however, we may state expressly that Mr. Joshi clearly submitted that he was placing reliance on the provisions contained in s. 297(2)(d)(ii) only and was not relying on the provisions contained in s. 297(2)(k) of the 1961 Act, or in s. 24 of the General Clauses Act, 1897. In view of this clear statement and the position taken, we are not required in this judgment to deal with Mr. Patwa's contention as to the applicability and construction of these statutory provisions. Mr. Patwa submitted that the finding or direction mentioned under s. 297(2)(k) is one which is issued and, therefore, cannot have any reference to an appellate decision given by the Tribunal under s. 33 of the Indian I.T. Act, 1922. This contention appears to be borne out by the decision of the Patna High Court in Amarsinh Gowamal and Sons v. CIT [1976] 105 ITR 857, which he cited. But we need not discuss it here further as s. 297(2)(k) is not relied on by learned counsel for Commissioner. Similarly it has become unnecessary to consider the decision of the Gujarat High Court in CIT v. Poonjabhai Vanmalidas [1976] 105 ITR 388, which turns on the application of s. 24 of the General Clauses Act, 1897.

Mr. Patwa made a two-fold submission on the statutory provisions under consideration. In the first place, it was submitted that the provisions of the New Act which were sought to be made applicable by the phraseology employed in s. 297(2)(d)(ii) were what may be described or characterised as machinery provisions, and in his submission Expln. 2 can by no stretch of imagination be regarded as a machinery provision simpliciter. The Supreme Court had occasion to consider s. 297(2)(d)(ii) of the 1961 Act in Govinddas v. ITO [1976] 103 ITR 123, where Bhagwati J., speaking for the court, has explained what properly is meant by the words " all the provisions of this Act shall apply accordingly " occurring in cl. (ii) of s. 297(2)(d). The relevant discussion is to be found at page 134 of the report. In the can before the Supreme Court, the assessment of a HUF had been completed under the provisions of the 1922 Act. To such an assessment the revenue authorities had sought to apply sub-s. (6) of s. 171 pursuant to a notice issued under s. 148. This was sought to be done by the revenue under the argument that the new provisions will be applicable by reason of the phraseology employed in s. 297(2)(d)(ii), which phraseology we have extracted earlier. It was held that the argument was without force. The words relied on by the revenue, according to the Supreme Court, " merely refer to the machinery provided under 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 court had in the said decision occasion also to consider the proper effect to be given to the word " accordingly " occurring in s. 297(2)(d)(ii). According to Bhagwati J., the word in the context meant nothing more than " for the purpose of assessment ". According to Bhagwati J., further, the phraseology clearly suggested that the provisions of the new Act which are made applicable " are those relating to the machinery of the assessment. The substantive law to be applied for determining liability to tax must necessarily be the law under the old Act " In that view of s. 297(2)(d), the contention of the revenue that by reason of these words " all the provisions of this Act shall apply accordingly " incorporated by reference to sub-s.(6) of s. 171, was rejected. Mr. Patwa submitted that in Murlidhar Bhagwas Das case [1964] 52 ITR 335, the Supreme Court had considered the proper meaning to be ascribed to the words " direction or finding " occurring in s. 34(3) of the 1922 Act. In his submission, Expln. 2, which was added to s. 153(3) of the new Act, could not be regarded as a provision relating to the machinery of assessment and must be regarded as one substantively affecting the rights or liabilities of the assessee. It was contended, therefore, that if the principle enunciated in Govinddas's case [1976] 103 ITR 123 (SC) were properly applied, then, it was clear that Expln. 2 cannot be pressed into service in the instant case by the revenue.

Now, in connection with this argument, it has to be noted that all which are being considered, commencing from s. 147 the provisions onwards to s. 153 of the Act of 1961 are to be found in Chap. XIV of the I. T. Act, 1961, which bears the heading " Procedure for assessment " Further, it would appear that initiation of reassessment proceedings or the jurisdiction to reassess, or to put it in other words, occasion to reassess, is provided for in s. 147, which may properly be regarded as a substantive provision pertaining to reassessment, whereas the following sections would and can properly be considered to be the machinery provisions pertaining to the method and the manner of reassessment. It has to be noted finally that the bar of limitation and the provision for the lifting of that bar cannot normally be considered as being part of substantive law. In the theory of jurisprudence limitation does not affect the existence of rights or liabilities, but such provisions pertain only to enforceability of rights and liabilities. The bar of limitation converts a right into an imperfect right, i.e., one which cannot be enforced but does not make it non est. Thus, applying the decision and the principles enunciated in Govinddas's case [1976] 103 ITR 123 (SC) it would appear to us that s. 153, which deals with the time-limit for completion of assessments and reassessments, can properly be regarded as part of the machinery provisions which are being postulated by the Supreme Court as being within the contemplation of the phraseology employed in s. 297(2)(d)(ii) and cannot be regarded as a substantive provision which is not made applicable.

Mr. Patwa then relied on the express phraseology of s. 153(3) and submitted that Expln.2 could be pressed into service only when a reassessment was made in consequence of or to give effect to findings or directions contained in orders under s. 250, 254, 260, 262, 263 or 264 of the 1961 Act and in the present case, since the direction was contained in the order of the Tribunal under s. 33 of the 1922 Act, it was not covered by the comprehensive phraseology of s. 153(3) ; and if that was so, there would be no warrant to press into service Expln. 2 to s. 153(3).

This was sought to be countered by counsel for the revenue, who submitted that the language of s. 153 was required to be applied with suitable necessary modifications and the suitable modification which was suggested for our approval was that after the words "under s. 250, 254, 260, 262, 263 or 264 " the court should read " or the equivalent provisions under the Act of 1922" It was submitted that this had been done by the Calcutta High Court and the Allahabad High Court which had applied the principle enunciated by the Supreme Court in M. Damodar Bhat's case [1969] 71 ITR 806 (SC). It was contended that the view taken by these courts was the proper view. It was submitted in the further alternative that even if this court has some doubt about the principles of statutory construction pressed into service by these two courts, the court should subordinate its own view and decide the reference approving the view taken by the two courts, on the principle of uniformity of interpretation of all-India legislations like the I.T. Act, which principle this court has followed in the past on several occasions. ln this connection, our attention was drawn to the decision of Chagla C. J, in Maneklal Chunnilal & Sons Ltd. v. CIT [1953] 24 ITR 375 (Bom), at page 385 and of Tambe J. (as he then was) in CIT v. Chimanlal J. Dalai & Co. [1965] 57 ITR 285 (Bom) (at pages 290, 291). In both these decisions, it was submitted that the Bombay High Court followed the decisions of the Madras High Court and the Gujarat High Court, respectively, although expressing its clear view that there was considerable merit in the opposite contention. Indeed, in Chimanlal J. Dalal & Co.'s case [1965] 57 ITR 285 Tambe J. (as he then was) observed that, had the matter to be decided been for the first time, the Bench would have agreed with the construction canvassed for on behalf of the revenue as, in the opinion of the Beach, that construction was in harmony with the general intention of the legislature expressed in the Act in respect of the assessment of a registered firm. However, at page 298 of the report, the Bench decided to follow the decision of the Gujarat High Court in CIT v. Kantilal Nathuchand [1964] 53 ITR 420, which took a view opposite to that which commended itself to the Bench. Mr. Joshi submitted that we may also adhere to the well settled practice and dispose of the reference following the decisions of the Calcutta and the Allahabad High Courts although we may not approve of the construction placed by those courts on s. 297(2)(d)(ii) or the application thereof as was done by the Calcutta and Allahabad High Courts. This was without prejudice to the general submission that the interpretation placed by those courts on these provisions was correct and based on the proper reading and application of the Supreme Court decision in M.Damodar Bhat's case [1969] 71 ITR 806. It becomes necessary, therefore, in the first place to consider whether it is necessary at all to apply or take resort to the principle of uniformity. In other words, have these two courts, viz., the Calcutta High Court in Eastern Coal Co. Ltd.'s case [1975) 101 ITR 477 and the Allahabad High Court in Kamlapat Moti Lal's case [1977] 110 ITR 769, taken the correct view of the provisions of s. 297(2)(d)(ii), viz., that what is provided therein, i. e., " all the provisions of this Act shall apply accordingly " must be interpreted and applied to mean that the provisions of this Act shall apply subject to necessary modifications or after making necessary changes? Both the courts have observed that on a plain and proper reading of this provision, the provisions of the 1961 Act which were required to be applied which following the decision of the Supreme Court in Govinddas's case [1976) 103 ITR 123 would mean machinery provisions, would be required to be applied mutatis mutandis or subject to necessary modifications. If that be the correct method of application of the machinery provisions of the 1961 Act then perhaps the revenue is correct in submitting that where s. 153 refers to any finding or direction in an order under s. 254, etc., the court will read in appropriate cases s. 254 of the 1961 Act or s.33 of the 1922 Act. Normally, it is found that the power to make necessary changes conferred on the court or which is sometimes referred to as a method of legislation by incorporation is secured by the legislature by expressly using the phrase mutatis mutandis where such interpretation is to be resorted to. The expression was construed in Bhutnath Das v. State of West Bengal, AIR 1964 Cal 552, where Bachawat J. (as he then was), speaking for the Bench, observed : "the expression mutatis mutandis means with the necessary changes in points of details ". The expression was used in s. 52 of the West Bengal Estates Acquisition Act, and it was observed that this section uses the familiar drafting device and to save repetitions provided that certain Chapters of the Act would apply to raiyats and under-raiyats with necessary modifications and changes.

The Full Bench of the Calcutta High Court also considered and expounded the mutatis mutandis rule in Corporation of Calcutta v. Sirajuddin, AIR 1957 Cal 399. It held that where the expression was utilised, it was an adverbial phrase qualifying the verb " shall apply " and requiring " those changes being made which must be made ". In the above case also, the expression mutatis mutandis has been expressly enacted by the legislature under s.364 of the Calcutta Municipal Act.

We have, however, under s. 297(2)(d)(ii) no such expression enacted by Parliament. Mr.Joshi made a faint effort to press into service the word " accordingly " to be found in the provision. But what the word " accordingly " connotes has been explained by the Supreme Court (Bhagwati J.) in Govinddas's case [1976] 103 ITR 123 and it does not anything of the sort suggested by Mr. Joshi. The question then is : Has the Supreme Court in Damodar Bhat's case, [1969] 71 ITR 806 laid down a general principle that what was provided in the saving section of the 1961 Act, i.e., under s. 297(2) must be read as qualified by the' adverbial phrase mutatis mutandis whenever the new Act or some provision thereof was made applicable to some proceeding, order or decision under the old enactment ? It becomes necessary, therefore, to consider the decision of the Supreme Court in M.Damodar Bhat's case [1969] 71 ITR 906.

In Damodar Bhat's case [1969] 71 ITR 806, the Supreme Court was considering and applying s. 297(2)(j) of the 1961 Act. The said section provides as under :

" 297. Repeals and savings.--(1). . .

(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act),--......

(j) any sum payable by way of income-tax, super-tax, interest, penalty or otherwise under the repealed Act may be recovered under this Act, but without prejudice to any action already taken for the recovery of such sum under the repealed Act."

The Supreme Court reversed the decision of the Mysore High Court and expressed its opinion that the ITO had authority to issue the notice of demand dated 11th December, 1963, under s. 156 of the new Act with respect to the tax liability of Rs. 485.55 incurred by the assessee under the old Act. The High Court had expressed the view that in the case of an assessment under the old Act no notice under s. 156 of the new Act was possible and there was no way of taking advantage of the provision for recovery and collection of tax contained in ss. 220 to 234 of the new Act. This was on the premise that all recoveries are possible only when the stage mentioned in s. 220(4) was reached, viz., that the assessee had become, or was deemed to have been, an assessee in default. In the view of the High Court, action under s. 226 could be taken only when an assessee was in default. The Supreme Court observed as follows :

" In our opinion, the reasoning adopted by the High Court and the conclusion reached by it is not correct in law. The effect of the judgment of the High Court on this point is that the provisions of s. 297(2)(j) of the new Act are nullified and declared to be of no consequence. An interpretation of s. 226(3) of the new Act which leads to such a startling result should be avoided as it is opposed to all sound canons of interpretation. As we have already stated, there is nothing in the language of s. 226(3) of the new Act to warrant the conclusion that the assessee should be in default or should be deemed to be in default before the issue of the notice under that sub-section. It is true that the group of sections from s. 220 to s. 232 of the new Act are placed under the heading " Collection and recovery ". But in a case falling within s. 297(2)(j) of the new Act, for example, in a proceeding for recovery of tax and penalty imposed under the old Act, it is not required that all the sections of the new Act relating to recovery and collection should be literally applied but only such of the sections will apply as are appropriate in the particular case and subject, if necessary, to suitable modifications. In other words, the procedure of the new Act will apply to the cases contemplated by s. 297(2)(j) of the new Act mutatis mutandis. "

It has to be noted that the Supreme Court restricted its observations in M. Damodar Bhat's case [1969) 71 ITR 806 to the application of the procedural sections of the new Act subject to the necessary modifications. Indeed, it is observed that the mutatis mutandis rule will be required to be considered and applied to these provisions because not to do so would result in nullifying the provision of s. 297(2)(j) and declaring them to be of no consequence. The law courts are always loath to assume that the legislature has acted in vain, and, therefore, must be reluctant to apply the provisions in a manner which would render some other provision a total nullity and of no consequence. If then the language of the provision could be reasonably construed in a manner to make it or some other provision governed by it relevant and effective, then that construction will be required to be given and preferred to another which will render it or that other provision a nullity or of no consequence. It is that principle which the Supreme Court called into play in M. Damodar Bhat's case [1969] 71 ITR 806 and in consequence of which it made necessary application of the mutatis mutandis rule to the procedure of the new Act made applicable by s. 297(2)(j), because not to have done so would have rendered the provisions of s. 297(2)(j) meaningless. In our view, the mutatis mutandis rule or the principle of construction based thereon is not one which can be called into play in cases where the legislature has not so expressly provided and where without necessary modification the statutory provision would not be rendered into a nullity but will have a restricted application. This may be explained in this manner : The effect of s.153(3) is not nullified nor does the section become of no significance if we restrict the application of that section, and naturally Expln.2 thereto, to the findings or directions given in the orders under the specific sections of the new Act named in the section. It would only mean that as against the larger effect being canvassed for by the revenue, the section as it reads would provide for operation in a smaller field. We are not concerned with what was intended by Parliament and, indeed, we have no method of finding what was intended. Further, it is well settled that the language of a provision is required to be construed as it stands and there is no warrant for enlarging or restricting the obvious language by any question of intendment or considerations of reasonableness or equity. As the language of s. 153 plainly stands, read together with Expln. 2, the bar of limitation imposed by s. 153(1) will stand lifted if the reassessment proceedings are in pursuance of or to give effect to findings or directions contained in orders under s. 250, 254, 260, 262, 263 or 264. To give it this limited effect cannot be regarded as equivalent to nullifying or negativing the section or to render it into one of no significance. That was the case and the result of the approach of the Mysore High Court in M. Damodar Bhat's case [1969] 71 ITR 806, which compelled the Supreme Court to apply the mutatis mutandis rule to s. 297(2)(j). In our opinion, there is nothing to warrant the application of that rule to s. 153(3) read together with the Explanation. Explanation 2 can be pressed into service where the order of reassessment is in pursuance of a direction or finding given in orders under the six sections of the new Act specifically mentioned or any order of any court but not otherwise. It is true that the Calcutta High Court somewhat briefly and the Allahabad High Court more elaborately have applied the Supreme Court decision in M. Damodar Bhat's case [1969] 71 ITR 806, which was on s. 297(2)(j), as laying down a general principle of interpretation, which was even applied to s. 297(2)(d)(ii) when considered in connection with ss. 147, 150 and 153 of the Act of 1961. We do not hold M.Damodar Bhat's case [1969] 71 ITR 806 (SC), as laying down any such general principle of invoking the mutatis mutandis rule by implication. Normally, the mutatis mutandis rule will be required to be considered only when provided expressly. It may in abnormal or unusual circumstances be required to be considered by necessary implication as perhaps was the case in M. Damodar Bhat's case [1969] 71 ITR 806 (SC). There is no such warrant for reading after the words " under s. 250, 254, 260, 263 or 264 " occurring in s. 153(3)(ii) the words or equivalent sections of the Act of 1922. Without these words the statutory provision under consideration is not rendered into one of no significance. The statutory provision is not nullified in the absence of these words and, therefore, there would be no warrant for enlarging the ambit of the statutory provision in the manner sought for the revenue, which admittedly has received approval of the Calcutta and the Allahabad High Courts.

On a number of occasions, the Bombay High Court has taken the view that the principle of uniformity should be followed particularly for interpreting and applying all-India Acts such as the I.T. Act. Indeed, Mr. Joshi has rightly pointed out that on at least two occasions Division Benches have answered the questions submitted to them in a manner which perhaps did not appeal to them principally because some other High Court had already taken the same view and the matter and the point was not res integra or arising for the first time. The question then is whether even in the view we have taken we should answer the question in favour of the Commissioner upholding the pressing into service of Expln. 2, which is the view approved by the Calcutta and the Allahabad High Courts. If the matter had merely rested on the interpretation of s. 153(3)(ii) or s. 297(2)(d)(ii), we might have been constrained to follow our earlier practice to adopt that course. It would appear to us, however, that both the High Courts have read much more than is warranted in M. Damodar Bhat's case [1969] 71 IT 806 (SC) and in Jain Brothers' case [1970] 77 ITR 107 (SC) (which is also referred to by the Calcutta High Court) and have enlarged the ambit of the mutatis mutandis rule to a situation where the application thereof would appear to us to be totally unjustified. This is not a mere question of interpretation of the I.T. Act but of adoption of a general principle of interpretation of statutes, which principle we are unable to accept. In our view, the principle of making necessary modifications or, what has been conveniently described as the mutatis mutandis rule, would be required to be brought into play when expressly provided for by the legislature or where its application becomes necessary by reason of the principle of necessary implication. There is no such express provision in s.297(2)(d)(ii) or in s. 153(3), nor, in our opinion, is it required to be applied by necessary implication as far as the section with which we are concerned. For this reason, we are unable to accept Mr. Joshi's submission that we should follow the decisions of the Calcutta and the Allahabad High Courts which have taken a contrary view to the one which appeals to us.

As far as the decision of this court in Ambaji Traders P. Ltd.'s case [1976] 105 ITR 273 was concerned, where the Division Bench at Nagpur had taken the view in favour of the revenue, it is clear that this aspect of the matter based on the clear phraseology employed in s. 297(2)(d)(ii) and s. 153 was not at all brought to the attention of the court, nor had the court the benefit of the decision of the Supreme Court, particularly the one in Govinddas's case [1976] 103 ITR 123. To that extent the decision was given in the absence of necessary argument and in the absence of necessary relevant provisions of law being brought to the attention of the court. We would, therefore, not be bound by that decision and are entitled to take a view different from the one taken by the court in the said decision.

In this view of the matter, the question referred to us, as reframed by us, is answered in the affirmative and in favour of the assessee.

The Commissioner will pay to the assessee the costs of this reference.

 

 

 

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