Full Judgment Text
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CASE NO.:
Appeal (civil) 7742 of 1997
PETITIONER:
KM SHARMA
Vs.
RESPONDENT:
INCOME TAX OFFICER, WARD 13(7)NEW DELHI
DATE OF JUDGMENT: 11/04/2002
BENCH:
CJI, N. Santosh Hegde & D.M. Dharmadhikari
JUDGMENT:
DHARMADHIKARI, J
In this appeal, which is filed after obtaining special leave, the Order dated 24th
May, 1996 of the High Court of Delhi has been assailed. The main question involved is
on the application and interpretation of the provisions of Section 150 of the Income Tax
Act, 1961 (hereinafter referred to as the Act).
The relevant facts necessary for deciding the legal question raised are as
under: -
1. The appellant’s lands were acquired under Section 6 of the Land Acquisition
Act and an award was passed on 2.12.1967 by the Chief Commissioner of Delhi
granting compensation in favour of the appellant. The Additional District Judge by
Judgment dated 20.5.1980 held the appellant entitled to 1/32 share of the compensation
awarded under various awards and the appellant was granted total compensation in the
sum of Rs.1,18,810/- approximately in the year 1981.
2. On a reference under Section 18 of the Land Acquisition Act, the learned
Additional District Judge, Delhi vide his Judgment dated 31.7.1991 awarded a sum of
Rs.1,10,20,624/-. The amount was paid to the appellant between 15.10.1992 and
26.5.1993. The amounts paid represented principal sum of compensation of
Rs.41,96,496/- and interest in the sum of Rs.76,84,829/- upto 18.5.1992. Before making
the above payments, tax was deducted at source amounting to Rs.8,60,701/-
3. Since the lands acquired were agricultural lands and were acquired prior to
1.4.1970, capital gains tax was not leviable but tax was leviable on interest earned on the
amount awarded on year to year basis.
4. The appellant through counsel sent a letter dated 17.9.1993 informing the ITO
that he had received interest amount of Rs.76,84,829/- and interest accrued from year to
year was assessable in each year. Year-wise break up of the interest was also given in
the letter. According to the appellant, no tax was leviable on interest accruing up to
31.3.1982 as assessment for it had become barred by time. The appellant, therefore,
requested that necessary action be taken under Section 147 of the Act to enable the
appellant as assessee to file his Income Tax Return and pay tax accordingly.
5. On 31.3.1994, the appellant was served with impugned notices under Section
148 of the Act for 16 assessments years i.e., 1968-69 to 1971-72 and assessments years
1981-82 to 1992-93.
6. The appellant, in the High Court, assailed the notices issued under Section
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148 of the Act for reassessment for the assessment years 1968-69 to 1971-72 and for the
year 1982-83 on the ground that the proposed reassessment for those assessment years
had already become barred by time under Section 149 of the Act, for which in the
relevant periods maximum period of four years or seven years limitation was prescribed
depending upon the quantum of liability towards tax.
7. The High Court by the impugned Judgment accepted the contention of the
Department that the provisions of Section 150(1) of the Act, as amended with effect
from 1.4.1989, could be resorted to for reassessment to levy tax on the increased amount
of interest earned by the appellant in the relevant assessment years. It was held that bar
of limitation prescribed under Section 149 of the Act was not attracted by virtue of the
provisions of Section 150 (1) because notices for such reassessments are based on the
awards passed in the land acquisition proceedings by the Court of the Additional District
Judge on a reference under Section 18 of the Land Acquisition Act. Upholding the
validity of the assessment proceedings initiated by the Department under Section 148 of
the Act, the High Court rejected the contention of the assessee that sub-section (2) of
Section 150 of the Act is an explanation to sub-section (1) and proceedings for
reassessment, which had already become barred by time under Section 149 of the Act
before 1.4.1989, could not have been commenced on the amended provisions of sub-
section (1) of Section 150.
8. To appreciate the contentions advanced by learned counsel for the parties and
the decision of the High Court, it is necessary to reproduce for critical examination the
provisions of Section 150 (1) and (2) of the Act. The provisions read as under:
"150 (1) Notwithstanding anything contained in section 149, the notice
under section 148 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 [or by a
Court in any proceeding under any other law]
[The portion bracketed and underlined above is inserted aby the
Direct Tax Laws (Amendment) Act, 1987 with effect from
1.4.1989.]
(2) The provisions of sub-section (1) shall not apply in any case where
any such assessment, reassessment or recomputation as is referred
to in that sub-section relates to an assessment year in respect of
which an assessment, reassessment or recomputation could not have
been made at the time the order which was the subject-matter of the
appeal, reference or revision, as the case may be, was made by
reason of any other provision limiting the time within which any
action for assessment, reassessment or recomputation may be
taken."
9. Section 149 of the Act prescribes maximum period of four or seven years
depending upon the quantum of tax as mentioned in the said Section for initiating
reassessment proceedings. Section 150 (1) states that the period of limitation prescribed
in Section 149 is not applicable, if the reassessment is proposed on the basis of any
Order passed by any ’authority in any proceedings under the Act by way of appeal,
reference or revision’ or ’by Court in proceedings under any other law’. Sub-section (2)
of Section 150, however, makes it clear that reassessment permissible under sub-section
(1) of Section 150 would not be available to the Department where the period of
limitation for such assessment or reassessment has expired at the time it is proposed to
be reopened. In sub-section (1) of Section 150, by Direct Tax Laws (Amendment) Act,
1987 with effect from 1.4.1989, the words ’or by a Court in any proceeding under any
other law’ were inserted which are shown in bracket with underline in the Section
reproduced above.
10. The main question that has been raised on behalf of the learned counsel
appearing for the parties is whether the provisions of sub-section (1) of Section 150 as
amended can be availed for reopening assessments, which have attained finality and
could not be reopened due to bar of limitation, that was attracted at the relevant time to
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the proposed reassessment proceedings under the provisions of Section 149 of the Act.
11. The submission made on behalf of the appellant is that neither the provisions
of sub-section (1) nor sub-section (2) can be read as giving more than intended operation
to the said provision. The provisions, it is argued, do not permit the authorities to
reopen assessments, which have become final and reassessment of which had become
barred by time before 1.4.1989 when Section 150(1) was amended. Reliance is placed
on the decision of this Court in S.S.Gadgil v. Lal and Co. reported in [1964] 53 ITR 231.
12. The learned counsel appearing on behalf of the Department has made an effort
to persuade this Court to accept his construction of the provisions of Section 150(1) and
(2) of the Act. It is argued that it is for the specific purpose of assessing income, which
might accrue on the basis of any decision of any Court in any proceeding in any other
law that the provision has been amended to lift bar of limitation for reassessment.
13. Fiscal statute more particularly on a provision such as the present one
regulating period of limitation must receive strict construction. Law of limitation is
intended to give certainty and finality to legal proceedings and to avoid exposure to risk
of litigation to litigant for indefinite period on future unforeseen events. Proceedings,
which have attained finality under existing law due to bar of limitation cannot be held to
be open for revival unless the amended provision is clearly given retrospective operation
so as to allow upsetting of proceedings, which had already been concluded and attained
finality. The amendment to sub-section (1) of Section 150 is not expressed to be
retrospective and, therefore, has to be held as only prospective. The amendment made
to sub-section (1) of Section 150 which intends to lift embargo of period of limitation
under Section 149 to enable Authorities to reopen assessments not only on the basis of
Orders passed in proceedings under the IT Act but also on Order of a Court in any
proceedings under any law has to be applied prospectively on or after 1.4.1989 when the
said amendment was introduced to sub-section (1). The provision in sub-section (1)
therefore can have only prospective operation to assessments, which have not become
final due to expiry of period of limitation prescribed for assessment under section 149 of
the Act.
14. To hold that the amendment to sub-section (1) would enable the Authorities to
reopen assessments, which had already attained finality due to bar of limitation
prescribed under Section 149 of the Act as applicable prior to 1.4.1989, would amount
to giving sub-section (1) a retrospective operation which is neither expressly nor
impliedly intended by the amended sub-section.
15. On behalf of the assessee before the High Court and in this Court reliance has
been placed on the provisions contained in sub-section (2) of Section 150. It is
submitted that the provision contained in sub-section (2) of Section 150 is in the nature
of clarification or explanation to sub-section (1). Sub-section (2) makes it clear that the
embargo of period of limitation lifted under sub-section (1) for proposed reassessments
based on Order in proceedings appeal, reference or revision, as the case may be, would
not apply to assessments which have attained finality due to bar of limitation applicable
at the relevant time.
16. The High Court rejected the above contention of the assessee on the ground
that on the amendment introduced with effect from 1.4.1989 in sub-section (1), which
enables reopening of assessment based on any Order of ’Court in any proceedings in any
law’, there is no corresponding amendment made in sub-section (2) of Section 150 to
bar reassessment based on Order of Court passed in any proceedings in any law in cases
where prescribed period of litigation for reassessment had already expired.
17. We do not find the above reasoning of the High Court is sound. The plain
language of sub-section (2) of Section 150 clearly restricts application of sub-section (1)
to enable the Authority to reopen assessments which have not already become final on
the expiry of prescribed period of limitation under Section 149. As is sought to be done
by the High Court, sub-section (2) of Section 150 cannot be held applicable only to
reassessments based on Orders ’in proceedings under the Act’ and not to Orders of
Court ’in proceedings under any other law’. Such an interpretation would make the
whole provision under Section 150 discriminatory in its application to assessments
sought to be reopened on the basis of Orders under the IT Act and other assessments
proposed to be reopened on the basis of Orders under any other law. Interpretation,
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which creates such unjust and discriminatory situation, has to be avoided. We do not
find that sub-section (2) of section 150 has that result. Sub-section (2) intends to
insulate all proceedings of assessments, which have attained finality due to the then
existing bar of limitation. To achieve the desired result it was not necessary to make
any amendment in sub-section (2) corresponding to sub-section (1), as is the reasoning
adopted by the High Court.
18. Sub-section (2) aims at putting embargo on reopening assessments, which
have attained finality on expiry of prescribed period of limitation. Sub-section (2) in
putting such embargo refers to whole of sub-section (1) meaning thereby to insulate all
assessments, which have become final and may have been found liable to reassessments
or re-computation either on the basis of Orders in proceedings under the Act or Orders
of Courts passed under any other law. The High Court, therefore, was in error in not
reading whole of amended sub-section (1) into sub-section (2) and coming to the
conclusion that reassessment proposed on the basis of order of Court in proceedings
under Land Acquisition Act could be commenced even though the original assessments
for the relevant years in question have attained finality on expiry of period of limitation
under Section 149 of the Act. On a combined reading of sub-section (1) as amended
with effect from 1.4.1989 and sub-section (2) of Section 150 as it stands, in our view, a
fair and just interpretation would be that the Authority under the Act has been
empowered only to reopen assessments, which have not already been closed and
attained finality due to the operation of the bar of limitation under Section 149.
19. This Court took similar view in the case of S.S.Gadgil (supra) in somewhat
comparable situation arising from the retrospective operation given to Section 34(I) of
Income Tax Act, 1922 as amended with retrospective effect from 1.4.1956 by the
Finance Act of 1956. In the case of S.S.Gadgil (supra) admittedly under clause (iii) of
the proviso to Section 34(I) of the Indian Income Tax Act, 1922, as it then stood, a
notice of assessment or reassessment could not be issued against a person deemed to be
an agent of a non-resident under Section 43, after the expiry of one year from the end of
the year of assessment. The Section was amended by Section 18 of the Finance Act,
1956, extending this period of limitation to two years from the end of the assessment
year. The amended was given retrospective effect from April 1, 1956. 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 as an
agent under Section 43 in respect of certain non-residents. The case of the assessee,
inter alia, was that the proposed action was barred by limitation as right to commence
proceedings of assessment against the assessee as an agent of non-resident for the
assessment year 1954-55 ended on 31.3.1956, under the Act before it was amended in
1956. This Court in the case of S.S. Gadgil (supra) accepted the contention of the
assessee and held as under:
". The legislature has given to section 18 of the Finance Act,
1956, only a limited retrospective operation, i.e., up to 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 expressly 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."
20. On a proper construction of the provisions of Section 150 (1) and the effect of
its operation from 1.4.1989, we are clearly of the opinion that the provisions cannot be
given retrospective effect prior to 1.4.1989 for assessments which have already become
final due to bar of limitation prior to 1.4.1989. Taxing provision imposing a liability is
governed by normal presumption that it is not retrospective and settled principle of law
is that the law to be applied is that which is in force in the assessment year unless
otherwise provided expressly or by necessary implication. Even a procedural provision
cannot in the absence of clear contrary intendment expressed therein be given greater
retrospectivity than is expressly mentioned so as to enable the Authorities to affect
finality of tax assessments or to open up liabilities, which have become barred by lapse
of time. Our conclusion, therefore, is that sub-section (1) of Section 150, as amended
with effect from 1.4.1989, does not enable the Authorities to reopen assessments, which
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have become final due to bar of limitation prior to 1.4.1989 and this position is
applicable equally to reassessments proposed on the basis of Orders passed under the
Act or under any other law.
21. As a result of the discussion aforesaid, the appeal is allowed. The Judgment
of the High Court of Delhi dated 24.5.1996 is hereby set aside. As prayed in the
petition, the impugned notices issued by the respondent of the Income Tax Department
under Sections 148 and 142 of the Act against the appellant for the assessment years
1968-69 to 1971-72 and 1981-82 are hereby quashed. The appeal stands allowed with
costs.
..CJI
...J
[ N. Santosh Hegde ]
...J
[ D. M. Dharmadhikari ]
April 11, 2002