# In 1941 another firm in the name of v. D. was started by the

- **Citation:** [1964] 1 S.C.R. 29
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Bench:** S. K. Das, J. L. Kapur, A. K. Sarkar, M. Hidayatullah, Raghubar Dayal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/in-1941-another-firm-in-the-name-of-v-d-was-started-by-the-2900
- **Pages:** 102

## Headnote

Income Tax-Escaped income-Reassessment-Validity of
notic•-Btal'Ult providing for saving of notices-Retrospective
operation-Indian Income-to"' (Amendment) Act, 1948 (48 of
1948), •· 8-Indian Income-ta"' (Amendment) Act, 1953 (25 of
1953), 1. 31-Finance Act, 1956 (18 of 1956), •· 18-Indian
Income-ta"' (Amendment) Act, 1959 (9 of 1959), s. 2, 4-Indian
Income-ta.: Act, 1922 (11 of 1922), s. 34, as amended.
The first respondent's father, D, and another were partners
doing busines in the name of P.L. since 1935. D died in 1946
but the firm was continued with the first re<pondent as a partner .
In 1941 another firm in the name of V. D. was started by the
first respondent and two others, and
for the assessment
year 1942-43 the firm made a return of its income and alro
claimed registration. The Income-taJ< Officer, being of the
view that the firm belonged really to D refused registration and
added the income of the firm to the individual income of D.
In 1943-44 the Income-true Officer came to a different conclusion and held that the firm V.D. was a branch of the firm
P.L. For the subsequent years of a5'essment 1942-43 to 194849 also the firm V.D. applied for registration but was refused,
and for those several years appeals were filed before the Appellate Tribunal. An appeal was filed by the firm P.L. against
its assessment in respect of excess profits tax. There was also
an appeal against the a5'essment for the year 1942-43 by the
first respondent as the heir and legal representative of his father
against the decision that the income of the firm V.D. should be
included in the income of his. father. All these appeals were
heard together and decided by the Appellate Tribunal by its
order dated August 14, 1951. In th~t order the Tribunal gave
a finding that the busine5'.of the firm V.D. really belonged to
the firm P.L. This derision was confirmed by the High Court on
reference on October 8, 1953. In order to give effect to the finding of the Tribunal the Income-taJ< Officer issued a notice on
April 30, 1954, to the firm P.L. under s. 34 of the Indian Income-taJ< Act, 1922, that the income for the year endin11
1962
D1umtrr, 12.
1~2
s.c. p,,,,,,., Tnumt·
Ta Offic11!1, Mahl
H-'.,d, BomhaJ
••
V 1ta11tu11 Dwarkathu
30 SUPREME COURT REPORTS [1964) VOL.
March 31, 1943, had !>ten under-assessed, and that he propoocd
to reassess the income. The respondents challenged the validity
of the notice on the grounds (I) that the Income-tax Officer had
n<' jurisdiction to issue a notice after the expiry of the limit of
time fixed by sub-s. (I) of s. 34, (2) that the second proviso to
sub-s. (3) of s. 34 on which the Income-tax Officer relied did
not apply to the c:ise, and in any case, it was bad on the ground
that it violated Art. 14 of the Constitution of India, and (3)
that there was no provision in the Act under which the Appellate Tribunal could give a finding in the appeals filed by the
firm V.D. or in the appeal filed by the first respondent himself
that the income in question represented the income of the firm
P.L. The validity of the notice was sought to be sustained on
the grounds that, in any case, it could not be challenged by
reason of the amendments made in s. 34 of the Indian Incometax Act, hy the provisions of s. 31 of the Indian Income-tax
(Amendment) Act, 1953, s. 18 of the Finance Act, 1956, and
s. 4 of the Indian Income-tax (Amendment) Act, 1959.
Held, (per Sarkar, Hidayatullah and Raghubar Dayal,lJ.,
Da.• and Kapur,JJ., dissenting), that the notice dated April 30,
1954, was valid and its validity could not be Clllcd in question
y
•
in any Court or Tribunal in view of the provisions ins. 4 of the
•
Indian Income-tax (Amendment) A•.·t, 1959.
Per Das and Kapur,,U.-(1) The second proviso to s. 34
(3) of the Indian Income-tax Act, 1922, as amended by the
Amending Act of 1953, was hit by Art. 14 of the Constitution
of India and was invalid.
(2) The Income-tax Officer had no jurisdiction to issue
the notice on April 30, 1954, and could not r

## Text

_Characters 0–39,962 of 206,440. This is a partial read: ask again with offset=39962 for what follows._

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,
•
1
I S.C.R.
SUPREME COURT REPORTS
29
S. C. PRASHAR, INCOME-TAX OFFICER,
MARKET WARD, BOMBAY AND ANOTHER
"·
VASANTSEN DWARKADAS AND OTHERS
(S. K. DAS, J. L. KAPUR, A. K. SARKAR,
M. HIDAYATULLAH and RAGHUBAR DAYAL, JJ.)
Income Tax-Escaped income-Reassessment-Validity of
notic•-Btal'Ult providing for saving of notices-Retrospective
operation-Indian Income-to"' (Amendment) Act, 1948 (48 of
1948), •· 8-Indian Income-ta"' (Amendment) Act, 1953 (25 of
1953), 1. 31-Finance Act, 1956 (18 of 1956), •· 18-Indian
Income-ta"' (Amendment) Act, 1959 (9 of 1959), s. 2, 4-Indian
Income-ta.: Act, 1922 (11 of 1922), s. 34, as amended.
The first respondent's father, D, and another were partners
doing busines in the name of P.L. since 1935. D died in 1946
but the firm was continued with the first re<pondent as a partner .
In 1941 another firm in the name of V. D. was started by the
first respondent and two others, and
for the assessment
year 1942-43 the firm made a return of its income and alro
claimed registration. The Income-taJ< Officer, being of the
view that the firm belonged really to D refused registration and
added the income of the firm to the individual income of D.
In 1943-44 the Income-true Officer came to a different conclusion and held that the firm V.D. was a branch of the firm
P.L. For the subsequent years of a5'essment 1942-43 to 194849 also the firm V.D. applied for registration but was refused,
and for those several years appeals were filed before the Appellate Tribunal. An appeal was filed by the firm P.L. against
its assessment in respect of excess profits tax. There was also
an appeal against the a5'essment for the year 1942-43 by the
first respondent as the heir and legal representative of his father
against the decision that the income of the firm V.D. should be
included in the income of his. father. All these appeals were
heard together and decided by the Appellate Tribunal by its
order dated August 14, 1951. In th~t order the Tribunal gave
a finding that the busine5'.of the firm V.D. really belonged to
the firm P.L. This derision was confirmed by the High Court on
reference on October 8, 1953. In order to give effect to the finding of the Tribunal the Income-taJ< Officer issued a notice on
April 30, 1954, to the firm P.L. under s. 34 of the Indian Income-taJ< Act, 1922, that the income for the year endin11
1962
D1umtrr, 12.
1~2
s.c. p,,,,,,., Tnumt·
Ta Offic11!1, Mahl
H-'.,d, BomhaJ
••
V 1ta11tu11 Dwarkathu
30 SUPREME COURT REPORTS [1964) VOL.
March 31, 1943, had !>ten under-assessed, and that he propoocd
to reassess the income. The respondents challenged the validity
of the notice on the grounds (I) that the Income-tax Officer had
n<' jurisdiction to issue a notice after the expiry of the limit of
time fixed by sub-s. (I) of s. 34, (2) that the second proviso to
sub-s. (3) of s. 34 on which the Income-tax Officer relied did
not apply to the c:ise, and in any case, it was bad on the ground
that it violated Art. 14 of the Constitution of India, and (3)
that there was no provision in the Act under which the Appellate Tribunal could give a finding in the appeals filed by the
firm V.D. or in the appeal filed by the first respondent himself
that the income in question represented the income of the firm
P.L. The validity of the notice was sought to be sustained on
the grounds that, in any case, it could not be challenged by
reason of the amendments made in s. 34 of the Indian Incometax Act, hy the provisions of s. 31 of the Indian Income-tax
(Amendment) Act, 1953, s. 18 of the Finance Act, 1956, and
s. 4 of the Indian Income-tax (Amendment) Act, 1959.
Held, (per Sarkar, Hidayatullah and Raghubar Dayal,lJ.,
Da.• and Kapur,JJ., dissenting), that the notice dated April 30,
1954, was valid and its validity could not be Clllcd in question
y
•
in any Court or Tribunal in view of the provisions ins. 4 of the
•
Indian Income-tax (Amendment) A•.·t, 1959.
Per Das and Kapur,,U.-(1) The second proviso to s. 34
(3) of the Indian Income-tax Act, 1922, as amended by the
Amending Act of 1953, was hit by Art. 14 of the Constitution
of India and was invalid.
(2) The Income-tax Officer had no jurisdiction to issue
the notice on April 30, 1954, and could not rely on the second
provi>0 to sub-s. (3) of s. 34 because the time limit fixed by
sub-s. (I) of s. 34 had expired long bcfvre the ;aid proviso
came into effect and the proviso did not revive a remedy which
had been lost before April I , 1952.
(3) Section 31 of the Indian Income-tax (Amendment)
Act, 1953, did not validate the notice dated April 30, 1954.
(4) The notices to which s. 4 of the Indian Income-tax
(Amendment) Act, 1959, were applicable and which were
validated were those that were issued between the date of the
amendment of the Finance Act, 1956, and that of the Amending Act of 1959. ft is not the effect of s. 4 .to abr<l'Jate and
supersede the time limit provided bys. 34 (I) (a) for all the
past years.
•
•
't
I S.C.R.
SUPREME COURT REPORTS
31
Per Das,J.-The evidence did not show that the notice
dated April 30, 1954, was issued under s. 34 (I) (Ameudment)
Act, 1959, was not applicable.
Per Kapur, J.-The principle of the law of limitation was
applicable to s. 34 of the Indian Income-tax Act, 1922, that if
the period prescribed for taking acti"n had already expired,
subsequent change in the law did not make it so retrospective
in its effect as to revive the power of an Income-tall Ofl"icer to
take action under the new law.
Per Sarkar,J.-The second proviso to s. 34 (3) as amended in 1953, in so far as it affected persons other than the assessee
was void as violating Art. 14 of the Constitution, and could not
be relied on in support of the notice in the present case.
Per Hidayatullah and Raghubar Dayal, lJ.-(1) The
different periods indicated under s. 34 cannot be treated as
periods of limitation, in the sense that the expiry of the periods
grants prescriptive title to defaulting tax-payers or a vested
right arises in the assessee. The liability to the State is indepe·
dent of any consideration of time and, in the absence of any
provision restricting action by a time limit, it can be enforced
at any time.
(2) Under the Indian Income-tax and Business Profits Tax
(Amendment) Act, 1948, which came into force on March 30,
1948, the Income-tax Ofl"icer could take action retrospectively
in· all cases in which the assessment years ended within eight
years of the date of his action and in which there was an escapement of an assessment for the reasons indicated in cl. (a)o
s. 34 (I), as amended.
(3) The Income-tax (Amendment) Act, 1953, enabled
action at any time if there was a finding or direction of the
character indkated in th_e second proviso to sub-s. (3) of s. 34,
and s. 31 of the Amendment Act applied the amended
s. 34 to all assessments commenced after September 8, 1948,
'
and s•.ved all notices issued and assessments made in respect of
any year prior to April I, 19481 whether the notices were issued
or the assessments made before or after April I, 1952.
(4) The second proviso to s. 34 (3), as amended in 1953,
was not discriminatory and did not offend Art. 14 of the
Constitution.
(5) The notice issued against the firm P. L. was validly
issued under the amended second proviso to s. 34 ( 3).
1962
S.C. Prosfror, Incom1•
Tax Ojfiur, Mark<I
w.,.d, Bamja.J
y.
Vasantsen DwarkUtU
32
SUPREME COURT REPORTS [1964) VOL.
1962
CrvIL APPELLATE JURISDICTION : Civil Appeal
s.c. PraJ!tm, '""""'" No. 705 of 1957.
To~ Offi,~, M~kll
Word, Bomb<r!
••
Yasanlstn Dwar4a,/as
Da, J.
Appeal from the judgment and order dated
October 5, 1955 of the Bombay High Court in Appeal
No. I of 1955.
K.N. R11j11gopal Sastri and P.D. Menon, for
the appellants.
N. A. Palkhivala, J.B. Dadachanji,
0. C.
Mathur,
and Ravinder Narai11,
for respondents
Nos. 1 and 2 ..
N. A.
Palkhivala, D. N. Jlfukherjee
and
B.N. Ghosh, for the intervener.
1962. December 12. The following judgments
were delivered.
S. K. Das, J., J: L. Kapur, J., and
A.K. Sarkar, J., delivered separate judgments. The
judgment of M.
Hidayatullah
and Raghubar
Dayal, JJ., was delivered by Hidayatullah, J.
S. K. DAS, J.-Thi3 appeal has been brought to
this court on a certificate of fitness granted by the
High Court of Bombay.
The appellants arc the
Union of India and tile Income-tax Officer, Market
Ward, Bombay.
By this appeal the appellants
challenge the correctness of the judgment and order
of the High Court of Bombay dated October 5, l!l55,
by which the High Court affirmed 'the judgment and
order of a learned single Judge of the same court
dated December 7, 1954, on a petition filed by the
respondents under Art. 22fi .of the Constitution.
The relevant facts are these.
The firm of
Purshottam Laxmidas was started on October-28,
1935.
This firm had two
partners, Dwarkadas
Vussonji and Parmanand Odhavji. Dwarkadas died
on April I, 1946, leaving a son, Vasantscn.
Another
firm by the name of Vasantsen Dwarkadas was
y
t
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1 S.C.R.
SUPREME COURT REPORTS
33
started on January 28, 1941, and in that firm there
were three partners, Vasantsen, Narandas Shivji and
Nanalal Odhavji.
This firm was dissolved on
October 24, 1946. The firm of Vasantsen Dwarkadas
filed a return of its income for the assessment
year 1942-1943 and also claimed registration as a
firm.
The Income-tax authorities refused registration and came to the conclusion that the firm of
Vasantsen Dwarkadas belonged really to Dwarkadas,
father of Vasantsen; therefore they added the income
of the firm to the income of Dwarkadas.
In subse·
quent assessment years the firm of Vasantsen Dwarka·
das again applied for registration, but registration
was again refused.
For the assessment years 1942·
1943 to 1948-1949 several appeals were filed before
the Income-tax Appellate Tribunal by the firm
Vasantsen Dwarkadas both against the quantum of
income assessed and against the refusal of the Incometaic Officer to register the firm of Vasantsen Dwarka·
das.
An appeal was also filed by the firm of
Purshottam Laxmidas against its assessment in respect
of excess profits tax, and there was also an appeal
for the assessment year 1942-1943 by Vasantsen as
the heir and leg ii representative of his father against
the decision of the Income-tax authorities that the
income of tie firm Vasantsen Dwarkadas should be
included in the income of Dwarkadas. It appears
that after the decision in Vasantsen's case in the
assessment year 19!2· 19!3, the Income-tax Officer
gave a finding that the firm of Vasantsen Dwarkadas
was only a branch of the firm of Purshottam Laxmidas
and therefore the Income-tax Officer added the
income of Vasantsen Dwarkadas to the income of the
firm Purshottam Laxmidas.
This question also came
up before the Income-tax Appellate Tribunal in the
appeals filed by Purshottam Laxmidas in respect of
the assessments made against it.
By a consolidated
order dated August 14, 1951, the Income-tax Appe·
!late Tribunal disposed of all the aforesaid appeals,
and it came to the conclusion that the business done
1961
S.C. Prashar, Ineom1Tax Officer, Mark1t
fVard, Bomb4y
v.
Yasant1en Dwarkatlas
Das, J,
1961
S.C. Prtu~ar. !ncomt·
lax 0 jfiar, .\f1.rkt1
ivard, Bomb11y
v.
VasonlJtll Dwt1rkadas
Das, ),
34
SUPREME COURT REPORTS [1964] VOL.
in the name of Vasantsen Dwarkadas was really the
business of the firm Purshottam Laxmidas.
With
regard to the appeal filed by Vasantsen as heir and
legal representative of his father for the assessment
year 1942-1944, the Tribunal expressed the view that
the income of Vasantsen Dwarkadas should be
deleted from the assessment of Dwarkadas. It said :
"We are therefore of opinion that the addition
of Rs. 62,372/-to Dwarkadas's income or the
modification directed by the Appellate Assistant Commissioner should be deleted from
Dwarkadas's income. If the Income-tax Officer
can
include the same in the income of
Purshottam Laxmidas, he is of course at liberty
to do so.
He can then apportion the income of
Purshottam Laxmidas amongst the partn<'rs
thereof as provided ins. 23 (5) of the Act."
The
Commissioner of
Income tax
questioned
the correctness
of the aforesaid
findinii: of the
Tribunal, but on a reference to the Hi~h Court the
latter upheld the order of the Tribunal. The reference was decided on October 8, 1953.
On April 30, Hl54, the Income-tax Officer
concerned who is the appellant before us served on
the firm Purshottam Laxmidas a notite under s. 34
of the Indian Inco1re-tax Act, 1922. This notice was
in these terms :
"Whereas I have reason to believe that vour
income assessable to income-tax for· the year
ending 31st March 1943 has been under-assessed
I therefore, propose to re-assess
to income
allowance that has been under assessed :
I hereby require you to deliver to me
within 35 days of the receipt of this notice a
return in the attached form of vour total income
•
'
1 S.C.R.
SUPREME COURT REPORTS
35
and total world income assessable for the year
ending 31st of March, 1943.
This notice is being issued after obtaining
the necessary satisfaction of the Commissioner
of Income-tax, Bombay City, Bombay."
The
notice was
followed
by some correspondence between the firm Purshottam Laxmidas and
the Income-tax Officer.
The result of the correspondence was that the Income-tax Officer informed the
firm that its income was to be re-assessed in order to
give effect to the finding of the Appellate Tribunal
in its order dated August 14, 1951 that the business
of Vasantsen Dwarkadas was really the business of
the firm Purshottam Laxmidas.
Onjuly 9, 195!, Vasantsen as the first petitioner and the firm of Purshottam Laxmidas as second
petitioner filed a petition in the High Court under
Art. 226 of the Constitution and asked for the issue
of a writ quashing the notice dated April 30, 1954,
and a writ of mandamus restraining the Union of
India and the Income-(ax Officer concerned from
taking any steps or proceedings in pursuance of the
said notice. Their main contentions were (1) that
the Income-tax Officer had no jurisdiction to issue
the notice after the expiry of the limit of time fixed
by sub-s. (I) of s. 34, (2) that the second proviso to
sub-s. (3) of s. 34 on which the Income-tax- Officer
relied did not apply to the case, (3) that there was no
provision in the Act under which the Appellate
Tribunal could give a fir1ding in the appeals filed by
the firm of Vaiantsen Dwarkadas or in the appeal
filed by Vasantsen himself, that the income in
question
represented the income
of the firm
Purshottam Laxmidas and ( 4) lastly, that that the
second proviso to sub-s. (3) of s. 34 was bad on the
ground that it violated Art. 14 of the Constitution.
Desai, J., who heard the petition in the first
instance came to the conclusion that the notice was
1962
S.C. PraJhar, Income~
Tox Officer, Market
r·Vord, Bomh11y
••
Vasunlstn Dwarkadas
Das, J.
1961
S.C. PrasNzr, lnecllU·
T .. Offim, MMlul
Ward, Bombq,
••
Yuanlsm DwarUtbu
Dtu, J.
36
SUPREME COURT REPORTS [1964]VOL.
bad and without jurisdiction because, to use his own
words, the Income-tax Officer in issuing the notice
on April 30, 1954, which was clearly more than
eight years
from
the close of the assessment
year 1942· l 943 was obviously in error in thinking that
the second proviso to sub-s. (3) of s. 34 applied to
the case.
The learned Judge he Id that the proviso
did not apply to orders of assessment which had
become final before the date when it came into
force. It may be here stated that the second proviso
to sub-s. (3) of s. 34 was amended by Act XXV
of 1953 and by s. l (2) of the Amending Act of 1953
the amended proviso came into force on April l, 1952.
Desai, J., further held that the proviso in question
did not voilatc Art. 14 of the Constitution in so far
as assessees who were parties to the proceedings
before the Appellate Tribunal were concerned ; but
the proviso was bad in so far as it affectt"d persons
other than assessees.
He held however that the
petitioners before him were parties to the proceedings
before the appellate Tribunal and therefore fell
within the category of assessees.
In view however
of his finding that second proviso to sub-s. (3) of
s. 34 did not apply to the case, his final conclusion
was that the notice was without jurisdiction.
Thr matter was then taken in appeal and the
appeal was heard by Chagla, C. J., and Tendolkar,
J. The appellate court affirmed the finding of
Desai, J., that the notice under s. 34 was issued out
of time and was therefore invalid.
It further held
that the second proviso to sub-s. (3) of s. 34 did not
apply to the case. On the question as to whether
the second proviso voilatcd Arts. 14 of the Constitution it came to the conclusion that no valid distinction could be drawn between persons with regard to
whom a finding or direction is given by the appellate
Tribunal and persons with regard to whom no such
direction or finding is given.
The appellate court
expressed the view that both fell
in the same
'
•
1 s.c.R.
SUPREME COURT REPORTS
37
category and there was no difficulty in having a
uniform provision of law with regard to them. The
appellate court further expressed the view that for
the assessment year 1942-1943 the a&sessee before
the Tribunal was Vasantsen Dwarkadas as representing his father ; in that appeal the firm of Purshottam
Laxmidas was not before the Tribunal and therefore
the firm was no better than a stranger who was in
some way associated with the asses1ee. The appellate
court held in the result that the second proviso to
sub-s. (3) of s. 34 offended against Art. 14.
I have stated earlier that the appeal has been
brought to this Court from the decision of the
appellate court on a certificate of fitness granted by
the High Court. In the original statement of the
case filed on behalf of the appellants, the principal
qu~stion raised was that relating to the second
proviso to sub-s. (3) of s. 34 which I shall presently
read. The appellants were however allowed by us
to file
a supplementary statement of the case in
which two other points have been urged.
One of
these points is that the validity of the notice dated
April 30, 1954, cannot be challenged by reason of
the provisions of s. 31 of the Amending Act, 1953
(XXV of 1953). The second point is that the
validity of the notice cannot be challenged also
because of the provisions of s. 4 of the Indian
Income-tax (Amendment} Act, 1959 (I of 1959).
Therefore, three substantial questions fall for
decision in this appeal. The first question is whether
the second proviso to sub-s. (3) of s. 34 is constitutionally valid and applies to the case. The second
is, can the validity of the notice dated April 30, 1954,
be challenged in view of the provisions of s. 31 of the
Amending Act of 1953. The third question is the
effect of the provisions of the Indian Income-tax
(Amendment} Act, 1959 (I of 1959).
I shall now
deal with these questions one by one.
1962
S.C. Praskar, lneome•
T ox Ojfic1r, Markfl
Ward, Bomba}
v.
Vasuntsen Dwarktula1
Das, J.
1962
S.C. Proslwrr, lncomtT CJX Offir1r, Alarktt
Ward, Bombay
v.
VW'.lntsnr Dwarkatl•s
Das, J.
38
SUPREME COURT REPORTS ll961] VOL
First as to the second proviso to sub-s. (3) of
s. 34.
S. 34 of the Indian Income·tax Act, 1922,
has undergone many amendments.
It is not necessary to refer to the section as it stood prior to 1939.
The section a& it stood
in 1939 empowered the
Income-tax Officer to assess or reassess income which
had escaped assessment or had been under-assessed
or had been assessed at too low a rate or had been
the subject of excessive relief under the Act.
The
section made a distinction between two classes of
cases; one in which the Income-tax Officer had reason
to believe that the assessee had concealed the particulars of his income or had drliberately furnished
inaccurate particulars thereof and in this class of
cases the Income-tax Officer could take action as laid
down in the section at any time within eight years;
in all other cases the Income· ta.tt Officer could take
action within four years of the end of the relevant
assessment year.
The section was almost completely
recast by the Income-tax and Business Profits Tax
(Amendment) Art, 19i8 (Act XLVIII of 1948). For
the purpose of this case all that I need state is that
the two time limits of eight years and four years were
continued
in
respect of two classes
of caies
mentioned in clauses (a) and ( b) of sub·s. (I) of s. 34;
clause (a) related to cases of omission or failure on
the part of an assessee to make a return of his income
or to disclose fuJly and truly all material facts necessary for his assessment, and cl. (b) related to cases
where the Income-tax Officer had in consequence of
information in his possession reason to believe that
income, profits or gains chargeable to income-tax
had escaped assessment etc.
The time limit of eight
years applied to cases under cl. (a) and the time limit
of four years applied to cases under cl. (b).
Bys. 18
of the Finance Act, l 956, more changes were introduced with effect from April I, 1956.
The time limit
of eight years was omitted from sub-s. (I) as regards
cases falling under cl. (a) but a proviso to sub-s. (I)
of s. 34 which was substituted for the original proviso
,
•
•
y
"
l S.C.R.
SUPREME COURT REPORTS
a9
said inter alia that the Income-tax Officer shall not
issue a notice under cl. (a) of sub-s. (1) for any year
if eight years have elapsed after the expiry of that
year unless the income, profits or gain chargeable to
income-tax which have escaped assessment or have
been under-assessed or assessed at too low a rate or
have been made the subject of excessive re!ie( under
the Act etc. amount to or are likely to amount to
Rs. 1,00,000/- or more in the aggregate for that year
etc. Certain other safeguards were also introduced in
the sub-section with which we are not concerned.
Put shortly, the time limit of eight years continued
in respect of cL (a) cases if the amount was less than
Rs. 1,00,000/-.
Now, I come to sub-s. (3) and the second proviso thereto. Prior to 1956 sub-s. (3) provided that
every assessment or re-assessment should be completed
within eight years from the end of the relevant
assessment year in those cases where the assessee had
failed to make a return or failed to disclose fullv and
truly all materiai facts necessary for his assessment.
In 1956 the time limit was removed and the assessment or re-assessment in such cases might be completed at any time. In all other cases the period of
limitation was still four years, as it was before 1956,
for completion of assessment under s. 23 or of assessment or re-assessment, under s. 23 read with s.34. The
second proviso, after its amendment in 1953, constituted an exception to sub-s. (1) as well as sub-s. (3).
•
The periods of limitation laid down in sub-s. ( 1) for
initiating proceedings and in sub·s. (3) for making
an order of assessment or re-assessment were subject
to the exception mentioned in the second proviso. I
may now read that proviso-
"Provided further that nothing contained
in this section limiting the time within which
any action may be taken or any order, assessment or re-assessment may be made, shall
1962
S.G. Prad1ar, lncame~
Tax Officer, Marktt
Ward, Bombqy
v.
V asantsen Dw1,rkados
Das, J.
IH2
S.C. PrOJfaat, /ncom1~
To:c Offictr, Mark1t
Word, Bomba.J
v.
YosantJ111 Dwt11kodM
Dis, J.
40
SUPREME COURT REPORTS [1964] VOL.
apply to a re-assessment made under section
27 or to an assessment or re-assessment 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 31, section
33, sectiun 33A, section 33.B, section 66 or
section 66A."
I have stated earlier that the second proviso as
amended was inserted by the Income-tax (Amendment) Act, 1953 (XXV of 1953), with effect from
April l, l 952.
Now, I proceed to discuss the first question as
to whether this proviso applies in the present case.
The question has two facets : ( l) whether the proviso
is constitutionally valid and (2) if it is constitutionally
valid, does it apply to a case where the time limit
fixed by sub·s. (I) of s. 34 had expired some time
before April I, I 'J52, the date on which the proviso
came into effect
~
With regard to the first facet,
Chagla, C.J., has pointed out, rightly in my opinion,
that the persons with regard to whom a finding or
direction is given and persons with regard to whom
no finding or direction is given belong really to the
same category, namely, the category of persons who
are liable to pay tax and have failed to pay it for
one reason or another. Admittedly,/ersons who are
liable to pay tax and have not pai
it could not be
proceeded against after the period of limitation,
unless a finding or direction with regard to them was
y
given by some tribunal under the various sections
•
mentioned in the proviso; therefore out of the large
category of people who were liable to pay tax but
failed to pay it, a certain number is selected for
action by the proviso and with regard to that small
number the right of limitation given to them is taken
away.
The real question is, is there any rational
basis for distinguishing between
persons who arc
liable to pay tax and have failed to pay it and with
•
1 S.C.R.
SUPREME COURT REPORTS
41
regard to whom a finding or direction is given, and
persons who are liable to pay tax and have faih,d to
pay it and with regard to whom no finding or direction
is given.
I am in agreement with the view expressed
by the learned Chief Justice that no rational basis
has been made out for the distinction between the
two classes of people referred to above, who really
fall in the same category and with regard to whom
there was no difficulty in having a uniform provision
of law. I am further in agreement with the view of
the learned Chief Justice that the principle laid down
by this court in >"Juraj Mall Mohta & Co. v. A.V.
Visvanatha Sastri and another (1) applies. In that
case sub-s. ( 4) of s. 5 of the Taxation on Income
(Investigation Commission) Act, was challenged and
this Court pointed out that there was nothing uncommon either in properties or in characteristics
between persons who were discovered as evaders of
income-tax during an investigation conducted under
s. 5 ( 1) and those who were discovered by the Income·
tax Officer to have evaded payment of income-tax.
Both these kinds of persons really belonged to the
same category and therefore required equal treatment.
This Court pointed out that s. 34 of the Indian
Income-tax Act and sub-s. (4) of s. 5 of the impugned
Act dealt with persons who had similar character-
. istics and properties and therefore a different treat·
ment of some out of the same class offended the equal
protection clause embodied in Art. 14 of the Consti·
tution. It seems to me that the position is the same
here. Whether persons who evade tax are discovered
by means of a finding given by a tribunal or they
are discovered by any other method, they really
belong to the same category and therefore require
equal treatment. The second proviso to sub-s. (3) of
s. 34 which came into effect from April 1, 1952,
patently introduced an unequal treatment in respect
of some out of the same class of persons. Those
whose liability to pay tax was discovered by one
method could be proceeded against at any time and
c•> [19!5J 1 s.c.R. He.
1962
S.C. Prashar, lncom1·
Tax Officer, Marled
Ward, Bomheg
v.
Vasanlstn Du.;arkadas
Das, J,
1962
S.C. Prashar, Tric.om1~
Tax O.ffiur, .~farktl
Ward, Bombay
v.
V .,antstrt Dwarkat/as
Das, J.
4:.!
SUPREME COURT REPORTS [1964) VOL.
no limitation would arply in their case, and in the
case of others the limitation laid down by sub·s. (l)
of s. 34 would apply. This in my opinion is unequal
treatment which is not based on any rational ground.
Desai, J., put the matter on a somewhat narrower
ground.
He held that so far as assessees were concerned, there might be a rational ground for distin·
ction because the appeal proceedings etc. might take
a long time and the assessee being a party to the
appeal could not complain of such delay, therefore,
assessees did not occupy the same position as strangers.
But the learned Judge held that there was no rational
distinction so far as strangers were concerned and
there was no reason why they should be deprived of
the benefit of the time limit prescribed by sub-s. (l).
He therefore held that the proviso, so far as it affected persons other than assessees not parties to the
proceedings enumerated in it, must be held to be
ultm vires the legislature.
Even on this narrow
ground it seems to me that the respondents are en·
titled to succeed.
The finding which the Appellate
Tribunal gave in
il~ consolidated order dated
August 14, 1951, was a finding given in the appeal
filed by Vasantsen as heir and legal representative of
his father for the assessment year 1942-43.
In that
appeal the firm Purshottam Laxmidas was not even a
party, though Punhottam Laxmidas was a party to
certain other appeals before the Appellate Tribunal.
I have some difficulty in appreciaung how the firm
Purshottam Laxmidas can be treated as an assessee
within the meaning of the second proviso to sub's. (3)
of s. 34 for the assessment year 1942-1943. If the
firm cannot be so treated, then even on the narrow
ground stated by Desai, J., the proviso would be of
no help to the present appellents.
I now take up the second facet of the same
question. On this aspect of the case both the learned single Judge (Desai, J.) and the appellate court
(Chagla, C.J., and Tendol.kar, J.) were agreed. The
'
••
•
•
•
1 S.C.R.
SUPREME COURT REPORTS
43
relevant assessment year was 1942-1943 and it ended
on March 31,1943. The period of four years therefrom would end on March 31,1947, and the period of
eight years would end on March 31,1951. Now the
second proviso to sub-s. (3) came into effect, as I have
stated earlier, on April 1, 1952. In other words, the
time limit fixed by sub-s. (i) had expired some time
before the amended second proviso came into effect.
Desai, J., has rightly pointed out that it is a firmly
established principle of Income-tax law that once a
final assessment is arrived at and the assessment is
complete, it cannot be re-opened except in the circumstances detailed in ss.34 and 35 of the Act and
within the time limited by those sections.
Is there
anything in the proviso in question which would give
it a retrospective effect beyond April l, 1952? In my
opinion there is none.
The second proviso came into
force on April 1, 1952, and before that date the
period of eight years from March 31, 1943, had
already expired. • The legislation which provided
that from April 1, 1952, there would be no limitation
in respect of certain cases could not revive a remedy
which was already Jost to the Income-tax Officer. It
seems to me that the proposition of law is settled
beyond any doubt that although limitation is a
procedural law and although it is open to the legislature to extend the period of limitation, an important
right accrues to a party when the remedy against him
is barred by the existing law of limitation, and a
vested right cannot be affected except by express
terms used by the statute or the dearest implication
following therefrom. Some reliance was placed on
the decision of the Calcutta High Court in lncom'!-
tax Officer v. Oalcutt,a Discount Oo., Ltd., (') which
later came to this Court on a different point.
I am
of the opinion that the decision is of no help to the
present appellants. It was said in that decision that
the plain effect of the substitution of new s. 34 with
effect from March 30, 1948, was that from that date
the Income-tax Act was to be read as includiug the
(I) [ 1953] 25 I.T.R. 471.
1962
S.C. I'rashar, (nr.mnt •
Tax Ojfictr, Morkel
H'ard, Bombay
v.
Vasanlsen lJwar~adas
IJos, J.
1961
.!'.C. P"ultar, lnUPnl·
T.x Offiur, Mark1t
Wdrd, Bombay
v.
Y &Ullllun Dwarkadtu
DM, J.
44
SUPREME COURT REPORTS[l964] vot...
new section as a part thereof; the further effect of the
express language of the section was that so far as
cases coming within cl. (a) ofsub-s. (l) were concerned, all assessment years ending within eight years
from March 30, 1948, and from subsequent dates,
were within its purview. The learned Chief Justice
of the Calcutta Hi~h Court took particular care in
that decision to pomt out that what was not within
the purview of the section was an assessment which
ended before eight years from March 30, 1948. That
decision therefore does not in any way assist the present appellants.
On behalf of the appellants, some distinction
was sought to be drawn between a right and the
remedy thereof and it was contended that the liability of an assessee to pay the tax owing to the State
was always there from the commencement of the
assessment year and s. 3-l of the Act dealt merely
with the machinery of assessment.
It was
ar~ued
that a case under s. 34 was not analbgous to a umebarred claim to recover money from one i11dividual
by another.
In my opinion such a distinction is
entirely out of place so far ass. 34 is concerned. The
learned Chief Justice has rightly pointed out that
under s. 34 the Income-tax Officer has the right to
issue a notice within the period of limitation fixed by
sub-s. ( l ); in another sense, it may be said that the
remedy of the Income-tax Officer to bring to tax
escaped income is available to him under s. 34 provided
he avails himself of the remedy within the
period of limitation. No distinction can be drawn,
•
so far as s. 34 is concerned, between the right of the
Income-tax Officer and the remedy available to him.
If the remedy is lost, the right is also lost and if the
right is lost, much more so is the remedy.
Therefore, I am clearly of the view that on
April 3<J,
1954, the Income-tax Officer had no
•
jurisdiction to issue the notice which he did on the
1 S.C.R.
SUPREME COURT REPORTS
45
'
firm Purshottam Laxmidas under the second proviso
1962
to sub-s. (3) of s. 34, because the time limit fixed by - s.c. Proslw, 1.,.,.,
sub-s: (1) of s. 34 had expired long before the said
Tax. Olfi"'• M""k"
proviso came into effect and the proviso does not in
Wad, B,,.,bf!1
express terms or by necessary implication rr.vive a v"'"'''"' vow.,kadas
remedy which had been lost before April 1, 1952.
This disposes of the first question argued before
us. I proceed now to the second question, namely,
the effect of s. 31 of the Indian Income-tax (Amendment) Act; 1953 (XXV of 1953). I may first set
out the section :
,
"For the removal of doubts it is hereby
declared that _the provisions of sub-sections
(I), (2) and (3) of section 34 of the principal
Act shall apply and shall be deemed always to
have applied to any assessment or re-assessment - for any - year
ending
before · the
first day of April,
1948, in
anv
case
where
proceedings
in
respect
o( such
assessment or re-assessment
were commenced
under the said sub-sections after the 8th day
of September, 1948, and any notice issued
in accordance with sub-section (1) or any
assessment completed in pursuance of such
notice
within the time . specified in subsection_ (3), · whether before or after - the
commencement
of the Indian
Income-tax
(Amendment) Act, 1953, shall, notwithstanding
_any judgment or order of any court, Appellate
_ Tribunal or
Income-tax
authority to the
contrary, be deemed to_ have been validly
issued or completed, as the C;Jse may be, and
no - such notice,
assessment or re-as~essment
shall be called in question on the ground merely
that
the
provisions of
section 34 did
not apply or purport to apply in respect
- of
an
assessment
or
re-assessment
for
any year prior to the Ist day of April, 1948."
Das, J,
1962
S.C. Pra•luu, lffcomt•
Tax Ojfiur, Afarktl
IVutd, Bomb1y
v.
Vqsant.ren Dwmkatias
Dus, ).
46
SUPREME COURT REPORTS [1964] VOL.
It will be noticed that the section is in two
parts : the first part is declaratory of the law and
says that sub-ss. (I), ·:2) and (3) of s. 34 shall apply
and shall be deemed always to have applied to any
assessment or re-assessment for any year ending before
April I, 1948, in any case where proceedings in
respect of such assessment etc. were
commenced
under the said sub-sections after September 8, 1948,
and any notice issued in accordance with sub-s. (I)
or any a~sessment completed in pursuance of such
notice within the time specified in sub-s. (3), whether
before or after the commencement of the Amending
Act of 1953, shall be deemed to have been validly
issued etc.; the second
part says inf,er alia that
no such notice shall be called in question on the
ground merely that the provisions of s. 34 did not
apply or purport to apply in respect of an assessment
prior to April l, 1948. It should be noticed here
that the Amending Ao:t of 1948 (Act XL VIII of I 948)
completely recast s. 3·1; and sub·s. (2) of s. I of that
Act which came into force on September 8, I 948,
provided that ss. 3 to 12 of the Amending Act should
be deemed to have come into force on March 30.
1948. The amendment of s. 34 was made by s. 8
of the Amending Act ; therefore, s. 34 as amended
by the Amending Act of I 948 operated retrospectively from March 30, 1948. In
the Calcutta
Discount Co. Ltd. v. Income-tax Officer ('), Bose, J.,
held that s. 34 although described as a machinery
section did not relate to procedure pure and simple
but affected the protection given to an assessee and,
therefore, the amended section had no application to
the assessments
for
1942-1943,
1943-1944 and
1944-1945. This view ofBoseJ., was not accepted by
the Appellate Court in Income-tax Officer v. Calcutta
Discount Co. Ltd. ('), where the learned Chief
Jmtice of the Calcutta High Court rightly pointed
out th'l.t s. 34 as it spoke from March 30, 1948, took
in all assessment years ending within eight years
from March 30, 19·l8, and subsquent dates, but
(I} (1952] 21 I.T.R. 579.
(2) [1953) 25 I.T.R. 471.
'
••
•
l
I s.c.R.
SUPREME COURT REPORTS
47
did not take in an assessment year which ended be/ore
eight years from March 30, 1948. It is worthy of
note that the Bill which became Act XXV of 1953
was introduced after the judgment of Bose, J., and
before the judgment of the learned Chief Justice.
There were really two separate and distinct questions ;
one was whether s. 34 as amended in 1948 applied
to assessment years prior to 1948-1949 and the
second question was whether, on the footing that
amended s. 34 did apply to assessment years prior to
1948-1949, any action could be taken under the
~ amended section in respect of those assessments which
had become time-barred before the amended section
came into effect.
Bose, J., answered the first
question in the negative and necessarily the second
question also in the negative. The learned Chief
Justice answered the first question in the affirmative,
but took pains to point out that an assessment made
before eight years from March 30, 1948, was not
•
within the purview of s. 34.
I am of the opinion that in its true scope and
effect, s. 31 of the Amending Act of 1953 puts
beyond any doubt that the view expressed by the learned Chief Justice in Income-tax Officer v. Calcutta
Dfacount Oo. Ltd. ('),
is the correct view and
amended -s. 34 applies to assessment years prior to
1948-1949, but it does not say that an assessment
which had become final and in respect of which reassessment
proceedings had become time-barred
before the amended section came into force could be
• re-opened. This appears to me to be clear from the
first part ofs. 31.
That part says that sub-ss. (l),
(2) and (3) of s. 34 shall apply and be deemed
always to have applied to any assessment etc. for
any year ending before April l, 1948 in any case
where -proceedings in respect of such assessment etc.
were commr.nced under the said sub-sections after
• September 8, 1948, and any notice issued in accordance with sub.s. (1) shall be deemed to be valid
(1) (1953] 23 f,T.R, 471,
1962
S.C. PraJ/iar, Income•
Tax Ojfic1r. Market
Ward, Bumhay
v.
Vasantsen Dwarkada.s
Va.l, .I.
1962
S.C.