High Court Of Kerala
Varkey Jacob & Co. vs. CIT & Anr.
Sections 147, 147(b), 149
Asst. Year 1979-80, 1980-81, 1981-82, 1982-83, 1983-84, 1984-85
J.B. Koshy & K.P. Balachandran, JJ.
Writ Appeal No. 1668 of 2002
26th November, 2004
Counsel Appeared
V. Ramachandran & M.P. Abraham, for the Appellant : P.K.R. Menon & George K. George, for the Respondents
JUDGMENT
J.B. Koshy, J. :
Whether proceedings for imposing tax or reopening assessment for the assessment years which have attained finality under the existing law due to bar of limitation can be revived by the amendment of law which has no express provision of retrospective effect is the question to be considered in this case. Senior advocate, Sri V. Ramachandran, appeared for the appellant, and Sri P.K. Ravindranatha Menon, senior standing counsel, for the IT Department, appeared for the respondents. The appellant/ petitioner is an unregistered firm and was a lessee of a rubber estate called “Velanikkara Estate” which was acquired by the Government for establishing an agricultural university. The Government took possession of the estate in 1973 and determined the compensation in March, 1974. Being a lessee of the land, the petitioner’s share was assessed as Rs. 9,58,192. Not being satisfied, the matter was taken for reference under s. 18 of the Land Acquisition Act and finally this Court by judgment in L.L.A. No. 247 of 1980, dt. 28th Jan., 1987, awarded compensation including solatium of Rs. 17,59,342 as the petitioner’s share with interest as provided under the Land Acquisition Act. On receipt of the amount, the petitioner was advised that they would be liable to pay tax on the interest granted on the compensation. Hence, it filed returns on 3rd Jan., 1990, showing the interest awarded as its income. The dispute in this case pertains to the asst. yrs. 1979-80 to 1984-85 for which also he filed returns on 3rd Jan., 1990. In these years, the petitioner had no other income than the interest from this amount.
In M. Jairam vs. CIT (1979) 11 CTR (Ker) 9 : (1979) 117 ITR 638 (Ker), a Division Bench of this Court held that the entire amount of interest has to be assessed in the year in which it was received. But, the above view was overruled by a Full Bench of this Court in Peter John (Decd.) vs. CIT (1986) 51 CTR (Ker)(FB) 83 : (1986) 157 ITR 711 (Ker)(FB). The Supreme Court in Smt. Rama Bai, etc. vs. CIT (1990) 84 CTR (SC) 164 : (1990) 181 ITR 400 (SC) finally held that interest on enhanced compensation for land compulsorily acquired under the Land Acquisition Act should be counted as having accrued year after year and such interest cannot be assessed to income-tax in one lump sum in the year in which the order is made. Therefore, when the assessee filed returns, he spread over the interest for the years 1979-80 onwards. Returns were filed on 3rd Jan., 1990, after receipt of the amount. The Department accepted the returns for the period from 1985-86 onwards, but did not accept the returns for the years 1979-80 to 1984-85 as filed out of time and issued notice under s. 148 of the IT Act for reopening the assessment. Thereafter, assessments were completed under s. 143(3) accepting the statements filed by the assessee. In doing so, interest under ss. 139(8) and 217 of the IT Act was also charged. The contention of the assessee was that notice issued under s. 147(a) r/w s. 148 by the IT authorities is illegal as the assessee had disclosed the income and on that basis only assessments were made. Therefore, assessments can be made only under s. 147(b) of the IT Act and in view of s. 149 the assessments beyond the four years of the notice are time- barred. The CIT in Exhibit P-13 order found that notices under s. 148 were issued only after the amendment of the IT Act w.e.f. 1st April, 1989, and, therefore, amended s. 147 will apply. Sec. 147(a) was wrongly quoted and as the notices were issued after 1st April, 1989, only the amended section will apply and the demand can be made within a period of ten years.
It is well-settled law that no tax in terms of Art. 265 of the Constitution of India can be imposed, levied or collected except by the authority of law. When the wordings are clear, one has to go by the language used by the legislature. In Cape Brandy Syndicate vs. IRC (1921) 1 KB 64 (at p. 71) it is stated as follows : “… in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”
4. In State of West Bengal vs. Kesoram Industries Ltd. & Ors. (2004) 187 CTR (SC) 219 : (2004) 10 SCC 201, the above principle was accepted by the Hon’ble apex Court of India. As held in Wm. Cory & Son Ltd. vs. IRC (1965) 1 All ER 917 (HL), a taxing or a fiscal statute demands strict construction. It must never be stretched against a taxpayer. So long as the natural meaning for the charging section is adhered to and when the law is certain, then, a strange meaning thereto should not be given. The above principle is accepted in India also as can be seen from CCE vs. Acer India Ltd. (2004) 8 SCC 173. Therefore, before going into the disputed question, we shall go through the relevant provisions before and after the amendment in 1989. Sec. 147 before amendment was as follows : “147. Income escaping assessment.—If— (a) the AO has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under s. 139 for any assessment year to the AO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in cl. (a) on the part of the assessee, the AO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income or re-compute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in ss. 148 to 153 referred to as the relevant assessment year)……”
5. After the amendment w.e.f. 1st April, 1989, in view of the Direct Tax Laws (Amendment) Act, 1987, s. 147 was substituted by the following s. 147 : “147. Income escaping assessment.—If the AO, for reasons to be recorded by him in writing, is of the opinion that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in ss. 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-s. (3) of s. 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year………”
6. Sec. 149 before amendment read as follows : “149. Time limit for notice.—(1) No notice under s. 148 shall be issued,— (a) in cases falling under cl. (a) of s. 147— (i) for the relevant assessment year, if eight years have elapsed from the end of that year, unless the case falls under sub-cl. (ii); (ii) for the relevant assessment year, where eight years, but not more than sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year; (b) in cases falling under cl. (b) of s. 147, at any time after the expiry of four years from the end of the relevant assessment year………”
7. Sec. 149 was also substituted w.e.f. 1st April, 1989. Under the new section, in case there is no original assessment, time-limit mentioned in issuing notice is ten years where the demand is more than Rs. 50,000.
8. First we may consider the question whether s. 147(a) or s. 147(b) will apply if the notice was issued before the amendment in 1989. In the revisional order (Exhibit P-13), it can be seen from para 3 that the assessee specifically contended that even though notice was issued under s. 147 (a), it can be made only under s. 147(b). That was dealt with by the CIT in para 4. The relevant portion is quoted below : “… Since the assessee itself filed the returns for the asst. yrs. 1980-81 to 1984-85 admitting the incomes, the AO was fully justified in invoking the provisions of s. 147 for these years. In this connection it may be mentioned that since no assessments were earlier completed under s. 143(3) for these assessment years, the proviso to s. 147 will not be attracted to the assessee’s case. No doubt in the assessment the section has been wrongly quoted as 147(a). This error will not invalidate the assessments in any way especially in view of the provisions of s. 292B.”
9. In view of the specific finding that the proviso to new s. 147 will not apply, it is clear that even the Department has no case that there is suppression of any materials by the assessee. So, in view of the findings that s. 147(a) will not apply and that the proviso to the present s. 147 also will not apply, under the old Act proceedings can only be started under s. 147(b) as there is no suppression of materials by the assessee and only on the basis of the materials supplied by the assessee the assessments were made. Therefore, if s. 147(b) is the applicable provision under the old Act at the time of the issuance of the notice, the notice was time-barred in view of s. 149(1)(b), i.e., after the expiry of four years from the end of the relevant assessment year. But the contention of the Revenue is that since ss. 147, 148 and 149 were substituted, the limitation that is applicable is as per the present provisions, after the amendment. The above provisions are only machinery provisions or procedural provisions and as per the newly substituted provisions of ss. 147 to 149, the demands are not time-barred. The contention of the assessee is that at the time when the amendment came, the assessment prior to four years of the amendment is a finalised issue as no notice was issued before the amendment and in view of the clear provisions of s. 147(b) r/w s. 149, no further assessments can be made on the assessee. In such circumstances, the amended provision has no application. It is also submitted that if it was not time-barred on the date when the amendment came, then the Department would have been justified in using the amended provisions of s. 147 in reopening the assessment within the time prescribed under the new section. Various decisions were pointed out to substantiate this argument.
10. We note that a similar contention was considered by a three Member Bench of the apex Court as early as in 1964, in S.S. Gadgil vs. Lal & Co. (1964) 53 ITR 231 (SC). After considering the case law the Supreme Court held as follows : “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 reassessment 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 reassess has lapsed on account of the expiry of the period of limitation prescribed under the earlier statute, the ITO can exercise his powers to assess or reassess under the amending statute which gives an extended period of limitation, was not accepted in Calcutta Discount Co.’s case (1953) 23 ITR 471 (Cal).
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 IT Act before it was amended, ended on 31st March, 1956. It is true that under the amending Act by s. 18 of the Finance Act, 1956, authority was conferred upon the ITO 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 ITO 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 when he issued the notice it is within the period provided by that amending Act.”
The same view was expressed by the Supreme Court in various cases like CED vs. M.A. Merchant (1989) 77 CTR (SC) 177 : (1989) 177 ITR 490 (SC); State of Tamil Nadu vs. Star Tobacco Co. (1973) 31 STC 319 (SC), etc., A Division Bench of this Court in Commr. of Agrl. IT vs. Panampunna Estates (1997) 143 CTR (Ker) 225, followed the above decisions and held that when the assessment has already become barred by limitation under the existing law, subsequent amendment of law enhancing the period of limitation cannot be availed of by the Revenue. Senior standing counsel pointed out a decision of this Court in ITO vs. Smt. Nilofer Hameed & Anr. (2003) 184 CTR (Ker) 247 : (2003) 262 ITR 281 (Ker). In that case, even though notice of assessment, under s. 148 was issued, that was not pursued. Thereafter, a second notice was issued. The Court held that before the second assessment, a second notice was issued in time and it was not barred by the earlier law at that time. In such circumstances, when the second notice was issued, it was not barred by the earlier law and by the time the new amended provision came, the amended provisions can be applied in the matter of assessment except for the rate of tax. The contention of the assessee is also the same. It is the assessee’s contention that if the notice was issued within the time prescribed under the old law or the time for assessment has not expired at the time when the amendment came into force, the new provisions would apply. But, here admittedly, when the amendment came, the time for assessment or reassessment as provided under s. 147 r/w s. 149 was over and the liability for assessment was completely extinguished. The amendment was not made retrospectively and as held by the Supreme Court in the case of S.S. Gadgil (supra), we are of the opinion that the amended provisions will not come to the rescue of the Department. Liability that was extinguished due to time bar cannot be resurrected or revalidated by the prospective amendment. In this connection, learned counsel for the appellant also cited a Division Bench decision of this Court in CIT vs. Vaikundam Rubber Co. Ltd. (2001) 165 CTR (Ker) 557 : (2001) 249 ITR 19 (Ker). We are of the view that the matter is beyond the controversy in view of the Supreme Court decision in this matter explaining the effect of very same amendment of ss. 149 and 150 in K.M. Sharma vs. ITO (2002) 174 CTR (SC) 210 : (2002) 254 ITR 772 (SC). Dicta of the above decisions have to be followed here. There, the Supreme Court relied on S.S. Gadgil’s case (supra) and held as follows : “A fiscal statute, more particularly a provision such as the present one regulating period of limitation must receive strict construction. The law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigants for an 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-s. (1) of s. 150 is not expressed to be retrospective and, therefore, has to be held as only prospective. The amendment made to sub-s. (1) of s. 150 which intends to lift the embargo of period of limitation under s. 149 to enable the authorities to reopen assessments not only on the basis of orders passed in proceedings under the IT Act but also on the order of a Court in any proceedings under any law has to be applied prospectively on or after 1st April, 1989, when the said amendment was introduced to sub-s. (1). The provision in sub-s. (1), therefore, can have only prospective operation to assessments, which have not become final due to expiry of the period of limitation prescribed for assessment under s. 149 of the Act. To hold that the amendment to sub-s. (1) would enable the authorities to reopen assessments, which had already attained finality due to bar of limitation prescribed under s. 149 of the Act as applicable prior to 1st April, 1989, would amount to giving sub-s. (1) a retrospective operation which is neither expressly nor impliedly intended by the amended sub-section.”
13. In fact, after the decision of the Supreme Court, a review petition was filed before the learned single Judge on the ground that when the matter was considered earlier, the judgment reported in K.M. Sharma vs. ITO (supra) was not available. But the review petition was also dismissed. We are of the opinion that the matter is covered by the above decision and we respectfully follow the same even though the review petition was dismissed. At the time of issuance of the impugned notices and at the time of amendment, the right to initiate proceedings under s. 147 was extinguished for certain assessment years as per the old provision. When the new Act came into force, there was no cause of action of issuing a further notice to review old matters which have attained finality under the then existing law due to limitation and, therefore, the new Act cannot be applied. The provision for limitation is not a mere procedure and unless it is made retrospective, it cannot be acted upon retrospectively for reviving any barred and extinguished assessments on the date when the Act came into force.
14. In the above circumstances, we allow the appeal and the impugned judgment is set aside. The assessment orders issued for the periods where liability was extinguished cannot be reopened invoking the extended limitation period in the amended provision. We make it clear that the notices issued for the assessment years for which liability to pay tax were not extinguished or time-barred as per the old law when the amended section came into force are valid.
[Citation : 275 ITR 146]
