Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1966 Supreme(SC) 27

SUPREME COURT OF INDIA
K H Subba Rao, M Hidayatullah, R S Bachawat
COMMISSIONER OF INCOME-TAX, PATIALA & ORS.
VERSUS
M/S. SHAHZADA NAND & SONS & ORS.
Civil Appeals Nos. 494 and 495 of 1964
decided on January 19, 1966.

Advocates:
D.N.MUKHERJI, I.M.NANAVATI, J.B.DADACHAN, N.A.PALKHIWALA, O.C.MATHUR, R.Ganapathy Iyer, R.N.SACH, Ravindra Narayan, S.T.DESAI, T.A.Ramachandran

The court held that after the expiry of a special time-limited provision for war-year tax evasion, the general provision allowing reassessment notices "at any time" for concealed income applies, as the two provisions did not occupy the same field.

Headnote:(A) Indian Income-tax Act, 1922 - Sections 34(1)(a), 34(1A), 34(1B), and 34(4) - Finance Act, 1956 - Reassessment of concealed income - Notice issued after the expiry of the limitation period - Interpretation of the phrase "at any time" - Conflict between general and special provisions - Whether a notice for reassessment in respect of concealed income of the war years can be issued under the general provision after the time limit prescribed in the special provision has expired.

(B) Rules of Construction - In a taxing Act, one must look only at what is clearly said; there is no room for intendment, equity, or presumption - In case of reasonable doubt, the construction most beneficial to the subject is to be adopted.

(C) Generalia specialibus non derogant - The principle that a special provision prevails over a general provision is not of universal application and applies only when both provisions occupy the same field. Where the words of a section are clear, the real meaning is arrived at by considering the aim, scope, and object of the whole Act, the law before the Act, the mischief it sought to remedy, and the reason for the remedy.

Facts of the case:
A notice for reassessment was issued for the assessment year 1945-46 on the grounds of escaped income. Initial proceedings were held to be barred by time. Following an amendment to the Act in 1956, which allowed notices to be issued "at any time" under the general provision for concealed income (subject to certain conditions), a fresh notice was issued in 1958. The assessees challenged this notice, contending that since the income related to the war years, it was governed by a special provision which prohibited the issuance of such notices after March 31, 1956.

Findings of Court:
The special provision for war years was intended to catch escaped income that was already barred by the then-existing 8-year limit of the general provision. Once the time limit for the special provision expired on March 31, 1956, it ceased to be operative. The subsequent amendment to the general provision, removing the time limit for concealed income of one lakh rupees or more, applies to all years from 1941 onwards, including the war years. The legislative intent was to bring substantial tax evasion to tax without a time limit.

Issues: Whether a notice issued under the general provision of the Act after the expiry of the time limit prescribed in the special provision for war years is barred by limitation.

Ratio Decidendi: The special provision and the general provision did not occupy the same field. The special provision was a temporary measure to address tax evasion during war years when the general limitation had already run out. After the special provision's deadline passed, the amended general provision, which allows notices "at any time" for concealed income, became the operative law. There is no conflict between the two after the special provision ceased to be operative.

Result: Appeals allowed.

Legal Category Hierarchy

JUDGMENT

Subba Rao, J. - These two appeals, one by special leave and the other by certificate, raise the question whether notice can be issued at any time for reassessment under s. 34(1)(a), as amended by the Finance Act, 1956, of the Indian Income-tax Act, 1922 , hereinafter called the Act, in respect of a concealed income to which s. 34(1A) thereof applied.

The facts may be briefly stated. Messrs. Shahzada and Sons, the 1st respondent in both the appeals, was an undivided Hindu Family firm and it was assessed in that capacity up to the assessment year 1945-46. It is alleged that subsequently there was a partition in the family and a new firm came into existence, which took over the business of the family. On March 26, 1954, the Income-tax authorities issued a notice to the members of the defunct Hindu undivided family under s. 34(1)(a) of the Act in respect of the assessment year 1945-46 on the ground that certain income of the said family had escaped assessment. Pursuant to the proceedings so initiated, a sum of Rs. 3,63,000/- was added to the original assessment of the said family. The assessee took up the matter on appeal to the Appellate Assistant Commissioner, who held that the said notice was barred by time, though on the merits he confirmed the order of the Income-tax Officer. The Income-tax Department as well as the 1st respondent preferred appeals against the said order to the Income-tax Appellate Tribunal. The Tribunal held that the notice was barred by time and, therefore, the income-tax authorities had no jurisdiction to give a finding on the merits. Meanwhile s. 34(1)(a) of the Act was amended by the Finance Act, 1956, within effect from April 1, 1956, whereunder, subject to certain conditions, a notice under s. 34(1)(a) could be issued at any time. Thereafter, on July 25, 1958, the Income-tax Officer issued a notice to the 1st respondent calling upon the members who constituted the undivided family to file a return for the assessment year 1945-46. Respondents 2 to 5, who were the members of the said undivided Hindu family, appealed to the Central Board of Revenue for redress without any success. Thereafter, they filed a petition under Art. 226 of the Constitution in the High Court of Punjab challenging the notice of various grounds. Their main contention was that no notice under s. 34(1)(a) could be issued in respect of the war years, as the escaped income during the said years was governed by s. 34(1)(1A) of the Act whereunder a notice could be issued only before March 31, 1956. The writ petition came up before a single Judge of the High Court, who referred the following question to a larger Bench :

"Whether or not in the circumstances of the present case the notice under section 34 issued on 25th July 1958 was barred by time."

The Division Bench, in its turn, referred the said question to a Full Bench. The Full Bench, inter alia, held that s. 34(1A) was a special provision whereas s. 34(1)(a) was general provision and that, as the escaped income of the year 1945-46 was governed by s. 34(1A), no notice under s. 34(1)(a) could be issued. In the result, after expressing that view, the Full Bench sent back the case to the single Judge before whom it came in the first instance. Dua, J., who heard the petition, following the view expressed by the Full Bench, allowed the petition. The appellants, thereafter, preferred a Letters Patent appeal against that order to a Division Bench, which dismissed the same. Civil Appeal No. 494 of 1964 has been filed by the Revenue by special leave against the order Full Bench dated September 8, 1961, and Civil Appeal No. 495 of 1964 has been filed, by certificate, by the Revenue against the order of the Division Bench confirming that of Dua, J.

At the outset it will be convenient to read the material provisions of s. 34 of the Act as amended by the Finance Act, 1956, and by the Income-tax (Amendement) Act, 1959.

Section 34. (1) If -

(a) the Income-tax Officer has reason to believe t