# INCOME-TAX OFFICER, TUTICORIN v. T. S. DEVINATH NADAR & ORS

- **Citation:** [1968] 2 S.C.R. 33
- **Court:** Supreme Court of India
- **Decided:** 1967-10-25
- **Case number:** Civil Appeals Nos. 2154 to 2158 of 1966
- **Bench:** K. N. Wanchoo, R. S. Bachawat, V. Ramaswami, G. K. Mitter, K. S. Hegde
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/income-tax-officer-tuticorin-v-t-s-devinath-nadar-ors-4332
- **Pages:** 22

## Headnote

Indian Income-tax Act, 1922 as amended by Act 25 of 1953, s. 35(5)
· -Rectifictition of partner's
assessment
consequent
on
reassessment
of firm-Section permitting such r.ctification in
re,.pect of "completed
assessment" of partners-Section whether applies to partner's assessmenrs
finalised before 1st April 1952.
The respondent and his four brothers were partners in a firm carrying ·
on. business in gunnies. The assessment of the firm for the year 194344
was compleied on January 22, 1946 and the share income of each partner
was also determined. The as.•essment of the respondent as an individual
on the basis of his share so determined was completed
on January 24,
1946. Subsequently the assessment of the firm was reopened by notice
under s. 34 of the Indian Income-tax Act, 1922 issued on September 11.
1952 and re-assessment by including some additional income was made
in May 1959. In July 1959 notice under s. 35(5) was served on the
respondent for consequential rectification of his assessment as an individual.
The rectification was ultimately ordered
to be made in August
1959. The respondent filed a writ petition )n the High Co.urt for quashing· the order.
Relying on the decision of this Court in Second Addi.
Income-tax Officer v. Atmala Nagaraj the High Court quashed the impugned order. The Revenue appealed to this Court: The question that
fell for consideration was whether s. 35(5) which was introduced by the
Income-tali Amendment Act, 1953 could be used to rectify assessments
made before ht Aoril 1952. the date from which the said amendment
came into force.
The respondent urged that since the
amendment had
be~n brought into force from an anterior date no greater retrospectivity
could be given to it.
HELD : (Per Wanchoo CJ., Bachawat, Ramaswami and Mitter. JJ.).
The aim of the legislation was to bring into line the assessment of the
individual partner with that of the firm. It does not stand to reason that
if the assessment of the firm is completed Jong after that of the individual
by reason of proceeding;; under s. 34 or otherwise the discrepancy in the
income of the partner as shown by the assessment of the firm and as an
individual ·should continue or be left untouched. and the obvious
and
logical com-,;e should be to rectify the assessment
of the individual on
the basis of the final assessment of the firm.
[39B]
-
On a plain reading of s. 35(5) it appears that the legislature intended
that the finding as to the non-inclusion of the proper share of the partner
in the profit or loss of the firrri in the assessment of the partner should
excite the power of rectification.
The power is to be exercised whenever
"it is found on the assessment or re-assessment of the firm or on
any
reduction or enhancement made in the income of the firm!'
The subject
matter of rectification is the completed assessment
of a partner in
the
:firm.
This is brought out by the use of the words "when in rcsoect of
any completed assessment of a· partner in a firm." · "Fhere is nothing in
the section to show that such "completed assessment"
must take place
afters. 35(5) was brought on the statute book. What must take place to
give rise to the power of rectification is th~ finding on t~e assessment or
34
SUPREME COURT REPORTS
(1968) 2 S.C.R.
r~~.
or the firm.
The finding alone must be made after
the
lll!Ctior\ came into force.
The finding IS to be
given effect to or maile
operative on the 'completed a~'lessment' of a partner. As
the mischief
sought to be rectified was the discrepancy hetween the income of the partner auesscd as lln individual and his income as computed on the assessment of the firm, the legislature must be held to have made the remedy
applicable whenever the mischief was discovered. There would have been
nothing unjull in making the power of rectification
exercisable at any
time alter lhc discovery of the discrepancy but !he
legislalure
in
its
wisdom did not think that the power should be used except within a limited period of four years fr

## Text

_Characters 0–39,782 of 59,183. This is a partial read: ask again with offset=39782 for what follows._

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INCOME-TAX OFFICER, TUTICORIN
v.
T. S. DEVINATH NADAR & ORS.
October 25, 1967
(K. N. WANCHOO, C.J., R. S. BACHAWAT, V. RAMASWAMI,
G. K. MITTER AND K. S. HEGDE, JJ.]
Indian Income-tax Act, 1922 as amended by Act 25 of 1953, s. 35(5)
· -Rectifictition of partner's
assessment
consequent
on
reassessment
of firm-Section permitting such r.ctification in
re,.pect of "completed
assessment" of partners-Section whether applies to partner's assessmenrs
finalised before 1st April 1952.
The respondent and his four brothers were partners in a firm carrying ·
on. business in gunnies. The assessment of the firm for the year 194344
was compleied on January 22, 1946 and the share income of each partner
was also determined. The as.•essment of the respondent as an individual
on the basis of his share so determined was completed
on January 24,
1946. Subsequently the assessment of the firm was reopened by notice
under s. 34 of the Indian Income-tax Act, 1922 issued on September 11.
1952 and re-assessment by including some additional income was made
in May 1959. In July 1959 notice under s. 35(5) was served on the
respondent for consequential rectification of his assessment as an individual.
The rectification was ultimately ordered
to be made in August
1959. The respondent filed a writ petition )n the High Co.urt for quashing· the order.
Relying on the decision of this Court in Second Addi.
Income-tax Officer v. Atmala Nagaraj the High Court quashed the impugned order. The Revenue appealed to this Court: The question that
fell for consideration was whether s. 35(5) which was introduced by the
Income-tali Amendment Act, 1953 could be used to rectify assessments
made before ht Aoril 1952. the date from which the said amendment
came into force.
The respondent urged that since the
amendment had
be~n brought into force from an anterior date no greater retrospectivity
could be given to it.
HELD : (Per Wanchoo CJ., Bachawat, Ramaswami and Mitter. JJ.).
The aim of the legislation was to bring into line the assessment of the
individual partner with that of the firm. It does not stand to reason that
if the assessment of the firm is completed Jong after that of the individual
by reason of proceeding;; under s. 34 or otherwise the discrepancy in the
income of the partner as shown by the assessment of the firm and as an
individual ·should continue or be left untouched. and the obvious
and
logical com-,;e should be to rectify the assessment
of the individual on
the basis of the final assessment of the firm.
[39B]
-
On a plain reading of s. 35(5) it appears that the legislature intended
that the finding as to the non-inclusion of the proper share of the partner
in the profit or loss of the firrri in the assessment of the partner should
excite the power of rectification.
The power is to be exercised whenever
"it is found on the assessment or re-assessment of the firm or on
any
reduction or enhancement made in the income of the firm!'
The subject
matter of rectification is the completed assessment
of a partner in
the
:firm.
This is brought out by the use of the words "when in rcsoect of
any completed assessment of a· partner in a firm." · "Fhere is nothing in
the section to show that such "completed assessment"
must take place
afters. 35(5) was brought on the statute book. What must take place to
give rise to the power of rectification is th~ finding on t~e assessment or
34
SUPREME COURT REPORTS
(1968) 2 S.C.R.
r~~.
or the firm.
The finding alone must be made after
the
lll!Ctior\ came into force.
The finding IS to be
given effect to or maile
operative on the 'completed a~'lessment' of a partner. As
the mischief
sought to be rectified was the discrepancy hetween the income of the partner auesscd as lln individual and his income as computed on the assessment of the firm, the legislature must be held to have made the remedy
applicable whenever the mischief was discovered. There would have been
nothing unjull in making the power of rectification
exercisable at any
time alter lhc discovery of the discrepancy but !he
legislalure
in
its
wisdom did not think that the power should be used except within a limited period of four years from the date of the final order in the ca;e of the
firm. 1390-HJ
.. Second Addi. lncome 0 1ax 0/Tkn v. Atma/4 Nagaraj 46 I.T.R.
609,
reversed.
A
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Km1umar/rrpuc// Ldhhmlnaraynna Chmy v, First Additional lncomttux Officer, Ne/lore, 29 I.T.R. 419, lncoltl4-tcrx Officer, Madras v. S. K. · C
Habihul/nli, Madras, [1962] Supp. 2 S.C.R. 716, Pardo v. Bingham, ~.R.
4 Chancery Appeals
735 and Ahmedahad
Manufacturing and CaJJco
Pr/11tillg Co. Ltd. v. S. C. Melita, [1963] Supp. 2 S.C.R. 92, referred IQ,
Per Hegde, J (di.rsenting). The as:;cssments of the respondents had
beco:ne final in the year 1946 and under the law as it stood prior to the
enactment of s. 35 ( 5) those assessments could. not have been interfered
with.
Section 35(5) neither expressly nor by necessary implication empawers the Income-tax Officer to reopen assessments which
had
become
final. If the section empowers the reopening of all final assessments of the
partners of firm. lherc \\·as no need to give that provision a partial retrospeclivity.
[51H: 52A]
The legislature used the expression "completed assessment" in s. 35(5)
to distinguish that class of assessment from assessments which arc made
final under the Act.
By using that expression the legislature intended
that the assessment of a partner should not be considered as a final assessment till the assessment of !he firm becomes final.
Jn other words the
partner.;' assessment "'·oukl continue to be tentative till the firm's assessment becomes final.
If that be lhc true interpretation of !lie expression
"completed assessment .. then the expression can
only apply to assessments of partners made on or after April
I, 1952. The
respondents'
assessments could not be considered
as .. completed assc.;sment.!i'' within
the me-•ninJ of that word ins. 35(5).
[52F-H]
The decision of this Court in Ata1nla Nagarafs case is correct. Even
.ao;suming that's. 35(5) can receive a different interpretation, this Court
would not be justified in overruling its previous decision except
under
compclJing circumstances; otherwise confidence of
tbe
public
i"n
the
soundn~s of the dedsion of this Court is bound to he shaken. [53C-E]
Bengal lnw11111ity Co. Ltd. v. State of Biliar & Ors., [1955) 2 S.C.R.
603, relieJ on.
C..ise Jaw referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2154
to 2158 of 1966.
· Appeals by special leave from the judgment and order dated
March 27, 1963 of the Madras High Court in Writ Petitions Nos.
1229 to 1233 of 1961.
S. K. A iyar and R. N. Sachthey, for the appellant (jn all the
.appeals).
T. A. Ramachandmn, for the respondents (in all the appeals).
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C.I.T. v. DEVINATH (Mitter, J.)
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The Judgment of WANCHOO, C.J., B_ACHAWAT, RAMA~WAMI
and MITTER, JJ. was delivered by MITTER, J. HEGDE, J. delivered
a dissenting Opinion.
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Mitter, J.
This group of five appeals by special leave arises
out of a common order made under Art. 226 of the Constitution
of the High Court of Judicature at Madras. The, ~\ppcals involve
ti;e .interpretation of s. 35 ( 5) of the Income-tax Act, 1922:
The facts in Civil Appe'al No. 2154 of 1966 relevant tor the
disposal of the appeal, taken by way of sample, are as follows.
'l he respcndent along with his four brothers were partners ol
a registered firm carrying on business in gunnies.
Th~ assessment of the firm for the year 1943-44 was completed on January
22, 1946 and the share income of each partner was dct~ralincd
at Rs. 8,265 /-. The assessment of !he respondent as individual
was completed on January 24, 1946 wherein was included his
income from the partnership just noted.
Subsequently, the
assessment of the firm was re-opened by proceedings under
s. 34(1) (a.) of the Act and a sum of Rs. 90,000/- was added
to the income of the firm liable to be brought to tax. The notice
under s. 34 was issued on' September 11, 1952 and th.: reassessment of the firm took place on May 30, 1959. On July 24.
1959 notice under s. 35(5) of the Act was serve'd on the respgndent for rectification of his assessment as an individual. The
rectification was ultimately ordered to be mad-3 on August 31,
J 959. The respondent applied to the High Court for quashing
the said order.
,
When the matter came to be heard by the High Court of
Madras, there were already three reported decisions of this Court
bearing on the interpretation of s. 35 ( 5) of the Act. In the faq
of these decisions, a doubt had -been cast as to the eorrectness
of the two earlier decisions but the High Court felt that the deci-
;ion in Second Addi. Income-h•x Officer v. A tmala Nagaraj(1)
being the second decision cif this Court in point of time. was fully
applicable to the cases before it and in that view of the matter
the order of rectification was quashed.
Hence these :ippe~ls.,
Before taking note of the earlier deci>ion_; of this Court, it
would be appropriate to consider the relevant provisions of the
lncome-tax Act and interpret them as if the matter were res integra.
If the result leads to a conflict of decisions, we will have to ex"-
mine the question a:; to whether the view taken in an earlier case
should be adhered to. It is only when this Court finds itself un -
abJe to accept the earlier view that it would be justified in decidin,c
these appeals in a' different way .
(I) 46 LTR, 6:;9.
36
SUPREME COuRT REPORTS
[1968] 2 S.C.R.
The two sub-section~ of s. 35 which call for interpretation are
transcribed as follows :
"35. Rectification of mistake.--{!) The Commissioner or Appel1ate Assistant Commissioner may, at any
time within four years from the date of any order passed
by him in appeal or. in the case of the Commissioner.
in revision under section 33A and the Income-tax Officer
may, at any time within fo,ur years from the date of any
assessment order or refund order passed by him on his
own morion rectify any mistake apparent from the record of the appc ,1, revision, assessment or refund as the
case may be, and shall within the like period rectify
any such mistake which has been brought to his notice
by an assessce :
Provided that no such rectification shall be made,
having the effect of enhancing an assessment or ~educ
ing a refund unless the Commissioner, the Appellate
Assistant Commissioner or the Income-tax Officer, as
the case m<1y be, has given notice to the assessee of his
intention so to do and has allowed him a reasonable
opportunity of being heard :
Provided further that no such rectification shall b
made of any mistake in any order passed more than one
year before the commencement of the Indian IncomeA
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tax (Amendment) Act, 1939.
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(2) to (4) .
(5) Where in respect of any completed a.•se-.mcnt
of a partner in a firm it is found on the assessment or
re-assessment of the firm or on any reduction or r.nhanccment m~de in the income of the firm under section
31, section 33, section 33A, section 33B, section 66 or
section 66A that the ~hare of the partner in the profit
or loss of the firm has not been included in the assessment of the partner vr, if included. is not correct, the
inclusion of the share in the assessment or the correction
thereof, as the case may be, shall be deemed. to be a
rectification of a mistake apparent from the record within the meaning of this section, and the provisions of subsection (I) shall apply thereto accordingly, the period
of four years referred to in that 'uh-section being computed from the date of the final order passed in the
case of the firm.
(6) to (10) _
"
Section 35(5) was brought on the statute book by the Incom(>.tax
\Amendment) Act. 1953 (XXVof 1953). Section 1(2) of the
Act provided that
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C.I.T. v. DEVINATH (Mitter,!.)
37
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"Subject to any special provision made in this behalf
in this Act, it shall be deemed to have come into force
on the 1st day of April, 1952."
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The Amendment Act contained provisions which show that som~
of the amendments introduced were to be effective from date;
other than 1st April, 1952.
Section 19 of the Act of 1953 introduced sub-sections (5), (6) and (7) of s. 35 of the original Act.
Under sub-s. ( 1) of s. 35 the Income-tax authorities mentioned
therein were empowered to rectify mistakes apparent from the record. Such power could, in the case of an Income-tax Officer, be:
exercised at any time within four years from the date of any as<essment order passed by him on his own motion. The section nowcver imposes a limitation in that the mistake must be in the record of the case itself. As a firm and the individuals composing
it are separate entities for the purpose of Income-tax Act, they arc
assessed separately.
Under s. 23(5)(a) of the Act when the
assessee is a registered
firm and its income
has been assessed
under sub-s. (!), sub-s. (3) or sub-s. (4) of that section the incometax payable by the firm itself has to be determined and the total
income of each partner of the firm including therein his share of
the firm's income, profits and gains of the previous year have to
be assessed and the sum payable by him on the basis of such
assessment has to be determined. Jn as much however as a mistake discovered in the assessment of the firm was not a mistake
apparent from the record of assessment of the individual partner.
s. 35(1) did not enable the Income-tax Officer to rectify the assessment of the individual partner because of the discovery of the
mistake in the assessment
of the firm.
The judgment of the
Andhra Pradesh High Court in Kanumar/apudi Lakslzminaraya1w
Chetty v. First Additional Income-tax Officer, Ne/lore(') wherein
it was decided that when the mistake discovered in the assessment
of the firm was not in the record of the individual partner s. ~5( I)
did not authorise the rectification of such mistakes was upheld by
this Court in The Income-tax Officer, Madras v. S. K. Habiballah,
Madras(').
Section 35 (5) removes that difficulty.
It expressly
provides that where it is found on the assessment or re-assessment
of the firm or on any reduction or enhancement made in the income of the firm under the provisions of the specified sections that
the share of the partner in the profit or loss of the firm has not been
included in the assessment of the partner or, if included, is not
correct, the inclusion of the share in the assessment or the correction thereof will be deemed to be a rectification of a mistake apparent from the record within the meaning of s. 35 so as to make
sub-s. (.1) of s. 35 applicable to the case of a completed assessment of a partner in a firm.
Whereas under s. 35(1) rectification
is only possible within four years from th!! date of any asSes.smcnt
(I) 29 T.T.R. 419.
(2) (1962] Supp. 2 S.C.R. 716,
38
SUPREME COURT REPORTS
[1968] 2 S.C.R.
order or refund order passed by the Income-tax Officer, the startA
ing point of computation of the period of four years under s. 35(5)
is the date of the final order passed in the case of the firm.
The point which has been canvassed in this case in favour
of the respondent is that as the section was brought on the statute
book on the I st April 1952 any mistake anterior to that date
cannot be rectified.
It was argued that the opening words of the
~cction rcadi,.,g
'"Where i11 respect of any completed assessment of
a partner in a firm.,
go
to
show
that
only
assessments
completed
after
the
introduction
of
the
provision
i.e.
on
!st
April
1952
were in the contemplation of the legislature as proper subject
for rectification.
It was urged that according to the well known
canons of construction legislation which impairs an existing right
or obligation except as regards matters of procedure, is not to
have retrospective operation unless such construction is clear from
the terms of the Act itself. This argument was sought to be fortified by a reference to sub-s. (2) of s. I of the Income-tax Amendment Act of 1953 on the ground that the legislature was bringing
this provision on the statute book as from an anterior date and
consequently no greater retrospcctivity should be given
to it.
.. The general rule"' as Halsbury puts it ir Vol. 36, (third edition),
page 423 :
"
is
that
all
statutes,
other than those "hich arc merely declaratory, or which
relate only to matters of procedure or of evidence, arc
prima facic prospective; and re~r6spective effect is not
to be given to !hem unless, by express words or necessary implication, it appears that this was the inte~tion
of the lcgisla••1re."
The law was also succinctly stated by Lord Hathcrley, L.C. in
Ptudo v. Bingham(') where on the question as to whether a statute
operated retrospectively it was said
"In fact. we m.ist look to the general scope and
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purview of the statute, and at the remedy sought to be
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applied. and consider what was the former state of the
law. and what it "'"' that the Lcgisbturc contemplated.'"
Applying the uhovc principles. we find that the aim of the
legislation \Vas to brin.~ into line the asse:-,<.;111cnl of the individu;:tl
purtncr with thut o[ the firm.
It was well known that in m~nv
cases u firm "s tinul assessment dragged 011 for years while th~
H
usse;smcnts of the individuals composing oL it
were
completed
en L.R 4 Ch;!:lt:'.'.':y App ... -;!,-:-_;~.
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Jon<> before the assessment of the firm itself because in the case
of fi1dividuals the matter was fairly simple. It does not stand to
reason that if the assessment of the firm is completed long after
that of the individual by reason of proceedin5s under s. 34 or
otherwise,' the discrepancy in the income of the partner as shown
by the assessment of the firm and as an. individual s~ould con-
.inue or be left untouched and the obv10us and log1cal course
should be to rectify the assessment of the individual on the basis
of the final assessment of the firm.
Sub-s. (5) of s. 35 is only a
step in that direction but the legislature in its wisdom thought
it best that assessments of individuals which had taken place before
the final order in the assessm~nt of the firm should not be. disturbed, except within four years therefrom.
Under the Income-tax
Act, 1922 a final assessment could not be altered except under proceedings sanctioned by s. 34 or s. 35 of the Act within the limits
of time thereby . prescribed.
Leaving aside for a moment the
point of time when sub-s. (5) came into the statute book, on a
plain reading of the p;:ovision it appears to us that the legislature intended that the finding as to the non-inclusion of the proper share of the partner in the profit or loss of the firm in the
assessment of the partner should excite the power of rectification.
The power is to be exercised whenever "it is found on the assessment or re-assessment of the firm or on any reduction or enhancement inade in the income of the firm".
The subject matter of
rectification is the completed assessment of a partner in a firm.
This is brought out by the use of me words "where in respect of
any completed asssessment of a partner in a firm". There is nothing in the section to show that such "completed assessment" must
take place after the provision i.e. s. 35 ( 5) was brought on the
statute book. What is to take place to give rise to the power of
rectification is the finding on the assessment or re-assessment of
the. finn etc.
The finding alone musi be made after section comes
into fo•ce.
The finding is to be given effect to or made more operative on the "completed assessment" of a partner.
As the mischief sought to be rectified was the discrepancy between the income
of the partner assessed as an individual and his income as computed on the assessment of the finn, the legislature must be held
to. have made the remedy, applicable whenever the mischief was
discovered.
There would have been nothing unjust in making the
power of rectification exercisable at any time after the discovery
of the discrepancy but the legislature in its wisdom did not think
that the power should be used except ·within a limited period of
four years from the date of the final order.
This group of appeals has been referred to .a larger Bench
than one of the three Judges before whom 'the matter was opened
on May 4, 1967 because of the earlier decisions of this Court. We
now proceed to examine these decisions chronologically. In The
40
SUPREME COURT REPORTS
!1968] ~ S.C.R.
lllcome-tax Officer, M{lf.fras v. S. K. Habib11/lah(') the facts were
as follows .. One Mohiuddin who was a partner in two registered
firms submitted returns of his income incorporating therein the
estimated share of losses in the two firms for the assessment years
1946-47 and 1947-48. The estim:aes of the assessec were accepted by the Income-tax Officer who completed the assessment for
the two years on February 20, 1950. The assessment of one of
the firms for the same years was completed on October 31, 1950
but the proportionate share of the assessce for the losses was computed at much smaller figures.
The asse~sment of the other firm
for 1947-48 was completed on June 30, 1951 again for a smaller
sum than that estimated by the assessee.
The Income-tax Officer
started rectification proceedings on t.lay 4, 1953 and ultimately
passed an order for rectification on March 27, 1954 after taking
into account the share of the losses as computed in the assessment of the two firms.
It will be noted at otlce that the finding
about the incorrectness of the losse~ of the firm as estimated by
the assessce as also the completion
of his assessment preceded
April I, 1952 and on the view of the section which we have taken
it could not be made applicable at all.
It was stated in exoress
terms by this Court :
"The power to rectify as.sessment of a partner consequent upon the assessment of the firm of which he is
a partner by including or correcting his share of profit
or loss can therefore be ex~rcised only in the case of
assessment of the firm made on or after April 1, 1952."
The decision in llabibullah's( 1 ) case therefore in no way con~:.:ts
with the view of s. 35(5) which we have taken above. In passing,
however, it may be noted that in Habibullah's(') case a·reference
was made to sub-s. (6) of s. 35 which was introduced in the statute
book by s. 19 of the Amendment Act of 1953 at the same time
as sub-s. (5).
There are certain words in sub-s. (6) which are not
to be found in sub-s. (5) and on a contrast berween the language
used in the two sub-sections it was observed in Habibul/ah's(')
case:
"When the Legislature under cl. (6) of s. 35 expressly authorised rectification in the circumstances mentioned therein even if the assessment has been completed
before the Indian Income-tax (Amendment) Act, 1953.
and it made no such provision in cl. (5), it would be
reasonable to infer that the Legislature did not intend to
grant to the revenue autho,~ties a power to rectify as~•
ments falling
within cl. (5) where the firm's assessment was completed before April I, 1952."
co (19621 SuPi>· 2 s.c.R..~716,
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C.I.T. v. DEVINATH (Mitter, J.)
41
This reasoning was advanced berore us in aid of the argument
that sub-s. (5) should have no
retrnspective operation beyond
April l, 1952. We do not want to express any view as to the
interpretation of sub-s. (6) . but in our opinion, sub-s: (5) was
clearly intended to give retrospective effect to final orders made
in the case of the firm by incorporation of the result thereof in
the case of the partner as an individual.
The second decision of this Court is that of Second Addi.
Income-tax Officer v. Atma/a Nagaraja('). In this case the proceedings related to the assessment of the respondent for ·the a~sess
ment year 1950-51. The respondent in one of the appeals was
assessed as an individual while in the other appeal tne respondent
was assessed as a Hindu undivided family.
The original assessment was completed in both ca~es on January 22, 1952.
Th"
two assessees ~eld shares in two registered firms and the share.'
from the profits of these firms were included in the assessable
ncome of the two respondents.
The assessments of the firms
were completed by an order dated October 16, 1954 when it wa'
'found that the aggregate shares of income from the two firms
in the case of each of the respondents were more than that for
what they had been assessed.
After starting proceedings under
s. 35 an additional demand was made whereupon the respondents
moved the. High Court of Andhra Pradesh.
After referring to
Habibu//ah's(') case and K. Lakshminarayana Chetty's(") case it
was said:
"The assessment of the respondents was a final ru;-
sessment before April 1, 1952, and sub-section (5) has
not been made applicable to such assessment, either expressly or by implication. It has been given a limited
retrospectivity from April 1, 1952, and it was held by
this court in the cited case that it was not open to courts
to give more retrospectivity to it.
Resort in this case
could only be taken to the law as it stood before the
introduction of sub-section (5), and as determined already by this court, the record of the firm's assessment could not then be called in aid to de)nonstrale ·an
error on the record of a partner's assessment. . . .
In our opinion, sub-section (5) could not be used in
this case, and the decision of the High Court was
right."
With very great respect, we find ourselves unable to concur.
As we have already said, sub-s. (5) becomes operative as soon a'
it is found on the assessment or re-assessment of the firm or on
any reduction or enhancement made in the income of the firm
(l} 46 I.T.R. 609.
,
(2) [1%2] Supp. 2 S.C.R. 716.
LIOSup.(Cl)/68-4
(3) 29 l.T.R. 419.
42
SUPREME COURT REPORTS
[1968) 2 S.C.R.
that the sha11: of t~e partner in the profit or loss of the firm had
A
not been mcludcd m the assessment of the partner or if included
was not corrc~t. The completion of the assessment of the partner as an md1v1dual need not happen after April 1, I 952. The
rnmplctcd assessment of the partner is the subject matter of rectil!cat.Jon and this may have preceded the above mentioned date.
Such Clllllplction docs not control the operation of the sub-section.
B
In the result, we find ourselves unable to concur in the decision
or the reasoning in Alma/a Nagaraj's(') case.
The last case in the series is that of Ahmedabad Manufac!uring 1md Calico Printiug Co. Lid. v. S. C. Mehta('). In this case
the Court had to consider sub-s. (l 0) of s. 35 which was introduced by s. I 9 of the Finance Act, I 956. The Bench hearing this
appeal was composed of five Judges and two of them, S. K. Da~
and J. L. Kapur, JJ., took the view that Habibu/lah's("') case had
been correctly decided but that Atma/a Nagaraj's(') case might
require re-consideration although they did not express any final
opinion on that point. Sarkar, J. (as he then was) did not think
that much assistance could be had from Habibullah"s case(") in the
matter of interpretation of sub-s. (I 0) of s. 35. He said further :
c
"There is nothing
in S. K. Habibullah"s(")
case
to indicate that in the opinion
of the learned Judges
ueciding it there were any words which would incJicate
that suo-s. (5) was to have a retrospective operation.
In my view, sub-s. (I 0) contains such words."
The judgment
of the
two other
Judges.
Hidayatullah
and
Raghubar DJyal, JJ. was delivered by HidJyatullah, J. wlic dealt
with the subject of rctro>pectivc opera! ion of statutes elaborately
and discussed llabihul/ah"s case(") at some length and expressed
the view (at p. 125) that although the section mentioned the final
order in the firm's assessment as the starting point "there was
nothing tc> show that this new terminus a quo must be after
1-4-I 952 before sub-s. ( 5) could be used." According to Hidayatullah. J. "the words of the sub-section were entirely indifferent
to this aspect."
The learned Judge was however careful to add
that this must not be considered as his final opinion on sub-s. (5).
Any opinion of Hidayatullah, J. even with the above qualification
merits the highest .respect.
After giving very amdous consideration to the views expressed by the learned Judge, we still hold
that hy sub-s. (5) of s. 35 the legislature intended that rectification should be made on the finding as to the incorrectness of the
as~ment of the firm after the provision was introduced in the
statute book, viz., 1·4-1952. There would have been nothing
unjust or inequitable in the legislature directing that rectification
(I) 46. I.T.R. 609.
(2) [1963! Supp. 2 s.c.R. 92.
(3) [1962] Supn. 2 S.C.R. 716.
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C.I.T. v. DEVINATH (Hegde, !.)
A
of the assessment of the partner should always follow the assessment or re-assessment of the firm made finally.
On the other
•and, we think rectification of the partner's . assessment should
logically follow the re-assessment or modification of the firm's
assessment.
Otherwise,
there would be an
unaccounted for
divergence between a person's assessment as an individual and his
B
assessment as a partner of a firm.
But the legislature, in our
opinion, did not intend to disturb completed assessment cif partners except within the period of time indicated earlier in this
judgment and unless the finding as to the incorrectness of the
firm's assessment was made after the terminus a quo above mentioned.
C
In the result, the appeals <ire allowed.
The judgment and
order of the High Court of ·Madras are set aside and the orders
of rectifiction passed by the Income-tax Officer are held to be
effective and binding on the respondents.
In the circumstance~
there will be no order as to the costs of these appeals.
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Hegde, J.
The respondents in these appeals were the partners
of a registered firm carrying on business in gunnies.
For the
assessment year 1943-44, i.e., the assessment year ending March
31, 1944, the firm in .. question was assessed to tax on 22-1-46.
Two days thereafter, namely on January 24, 1946, the partners of
the said firm were also assessed to tax for the assessment year
1943-44 after taking into consid!ration their share of profits in
the firm.
The Indian Income Tax Act 1922, to be hereinafter
referred to as the Act was amended by Act 25 of 1953. The
said amending Act among other provisions incorporated s. 35 ( 5)
into the Act. Section 1 (2) of that Act provided that "subjecr to
any special provision made in this behalf in this Act, it shall be
deemed to have come into force on ::he 1st day of April 1952". On
September 11, 1952, the ITO issued notice to .the firm under s. 34
of the Act requiring the firm to show cause why its assessment for
the assessment year 1943-44 should not be re-opened and enhanced
for the reasons mentioned in that notice.
In the proceedings
that followed the assessment of the firm was substantially enhanced on 30-5-59. Thereafter, the proceedings against the respondents were initiated under s. 35 ( 5) read with s. 35 ( l) as per
the notices dated 24-7-59.
fo those proceedings the assessment
of the respondents for the assessment year 1943-44 was enhanced.
The respondents challenged the validity of those proceedings in
the High Court of Judicature at Madras in writ petitions 12291233 of 1961 on its file.
The High Court following the decisions
of this Court in Income Tax Officer, Madras v. S. K. Habibullah( 1)
and Second Additional Income Tax Officer, G11rit11r v. Atma/a
Nagaraf and others("), allowed those writ petitions and quashed
(I) [1962] Supp. 2 s.c.R. 716.
(2) 46 l.T.R. 6G9.
SUPREME COURT REPORTS
[1968]2 s c
the impugned orders.
foese appeals are directed against the said
decision.
As the matters now stand, the question of law arising for decision is not res integra. It is concluded by the decision of th.is
Court in Atma/a Nagaraj's(1) case, wherein this Court laid down
that sub-s. 5 of s. 35 was not applicable to cases where the asseMment of a partner of a firm was completed before April 1, 1952
even though the assessment of the firm was completed after April
1, 1952.
Evidently, encouraged by some of the observations in the
decision of this Court in Ahmedabad Mfg. & Calico Printing Co.,
Ltd. v. S.S. Mehta, Income Tax Officer and another('), Mr. S. K.
Aiyer, learned counsel for the department contended that Habibul/ah's(1) case and Atma/a Nagarafs(') case were not correctly decidcJ and that they should be overruled.
Though the majority have not acceded to the contention of Mr. S. K. Aiyer that
Habibul/ah's(') case has not been correctly decided, it has accepted his contention that Atma/a Nagarafs(') case was not corrxtly
decided. As I am unable to concur with that conclusion, I am
constrained to deliver this dissenting judgment.
In my opinion,
no case is made out to overrule the decision of this Court either in
Habibul/ah's( 1 ) casr. or in Atma/a Nagarafs(') case
As seen earlier, the assessments in question were made as far
back as January 24, 1946. E.fery assessment under the Act is
final unless the same is modified in appeal or revision or reopened under s. 34 or rectified under s. 35.
The assessment with
which we are concerned in this case was neither modified in appeal
or revision nor reopened under s. 34.
The question for decision
is whether it can be rectified under s. 35.
Under the Act, the assessment of a firm and the assessment of
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its partners are two different assessments though in assessing a
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partner his share in the firm's profits is added to his other income.
In fact, the profits of a registered firm are subject to double tax,
firstly in the hands of the firm and nextly in the hands of its partnezs.
As the law stood prior to the amending Act 25 of 1953,
the assessment of a partner could not be rectified under s. 35 ( 1)
on the ground that the !inn's assessment had been enhanced as a
G
result of re-assessment.
In other words, the re-assessment of a
firm could not be considered as a mistake apparent from the records of the assessment of its partners.
That wa~ the view taken
by the Andhra Pradesh High Court in Kanumar/apudi Lakshminarayana Chetty v.
First Additional Income tax Officer, Ne/·
lore (4) and ¢.at view was accepted as correct by this Court in
H
Habibullah's case('). Therefore, all that we have to see is whether
(1) 41i I.T.R. 609.
(31 [1962] Sup. 2 S.C.R. 716.
(2) [1963) Supp. 2 S.C.R. 92.
(4) 29 I.T.R. 419.
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C.I.T. v. DBVINATH (Hegde, /.)
45
s. 35 ( 5) one of the group of clauses added by Act 25 of 195 3
could have been availed of by the ITO in making the impugned
rectifications.
·
Section 35(5); the the extent it is material for our present
purpose, reads ~s follows :
"Where in respect of any completed assessment of a
partner in a finn, it is found on the assessment or reassessment of a finn .... that the share of the partner
in the profit or loss of the firm has not been included in
the assessment of the partner, or, if included, is not correct, the inclusion of the share' of the assessment or the
correction thereof, as the case may be, shall be deemed
to be a rectification of a mistake apparent from the
record within the meaning of this section, and provisions
of sub-sections ( 1) shall apply thereto accordingly, the
period of four years referred to in that sub-section being
computed from the date of the final order passed in the
case of the firm."
Section 35 ( 1) empowers the income tax authorities to rectify
mis takes apparent from the record of certain orders pasoed by
them.
The clause (omitting parts not material) provides th;tt the
income tax officer may,· any time within the four years from the
date of any assessment order passed by him, on his own motion,
rectify any mistake apparent from the record of the assessment.
As seen earlier, prior to the amending Act 25 of 1953, the ITO
could not have made the rectifications with which we are concerned in these appeals.
Therefore, the question for decision is
whether by the exercise of the powers conferred on him by s.
35 ( 5), the ITO could have validly made the impugned rectifications?
it may be noted that in these cases both the assessment of the
finn as well as the assessment of its partners were made long before April 1, 1952. But the assessment of the firm was reopened
and the firm reassessed after that date. In Habibul/ah's(') case
this Court laid down that the legislature had given to cl. 5 of s. 35
which was incorporated with effect from April 1, 1952, a partial
retrospective operation.
The provision enacted by cl. 5 is not
procedural in character.
It affects the vested rights of the
assessee.
Therefore in the absence of compelling reasons, the
court would not be justified in giving a greater retrospectivity to
that provision than is warranted by the plain words used by the
legislature.
Cl. 5 of s. 35 does not purport to amend cl. 1 of the
same section.
It confers additional powers upon the income tax
authorities and that power cannot be exercised in respect of assessment of a firm which had been completed before the date on which
the power. had. been invested.
This Court quoted with approval
(I) [1962]Supp. 2 S.C.R. 716.
46
SUPREME COURT REPORTS
[1968] 2 S.C.R.
the observations of the Privy Council in lncon:ie
0Tax CommisA
sioner v. Kfzemchand Ramdas( 1)
:
"When once a final asses~ment is arrived at, it cannot, in their Lordships' opinion, be reopened except in
the circ~mstances detailed in sections 34 and 35 of the
Act .... and within the time limited by those sections."
B
From this decision the correctness of which is not doubted by the
majority, it follows that s. 35 ( 5) is only retrospective as from
April I, 1952; it has no greater retrospectivity and that section
cannot affect vested rights.
No doubt that decision was dealing
with the assessment of a firm, but the ratio of that decision, in my
opinion, applies with equal force to the assessment of a partner.
C
If the assessment of a firm made before April l, 1952 cannot be:.
reopened under s. 35(1) read with s. 35(5), the same must be
equally true of the assessment of a partner uf a firm.
The ratio
of the decision in Habibullah's(2) case is that qghts which have
become final prior to April 1, 1952 cannot be affected by having
recourse to s. · 35 ( 5).
D
By applying the ratio of the decision in Habibul!ah's(') case.
this Court held i:i. Atma/a Nagaraj's( 3 ) case that sub-s. 5 of s. 35
was not applicable to cases where the assessment of a partner wa'
completed before April l, 1952 even though the assessment of the
firm of which he was the partner wa.' completed after April I,
1952. At p. 612 of the report, this is what this Court observed
E
in Atma/a Nagaraj's(') case :
"Here, the original assessment wa, made before the
amendment. and to that assessment the amended provision cannot still be made applicable for the reason to be
given by us, even though the assessments of the firms
were after April I, 1952, and sub-section ( 5) has not
been made applicable to such assessment, either expressly or by implication.
It has been given a limited
retrospectivity from April I, 1952, and it was held by
this court in the cited case that it was not open to courts
to give more retrospectivity to it.
Resort in this case
could only be taken to the law as it stood before the introduction of sub-section ( 5), and as determined already by this Court, the record of the firm's assessment
could not then be called in aid to demonstrate an error
on the record of a partner's assessment.
It was further
held in S. K. Habibullah's( 2 ) case that the provision
enacted by sub-section (5) is not procedural in character
and that it affect~ vested rights of an assessee.
In our
(I) 65 I.A. 218.
(2) [t 962) Supp. 2 s.c.R. 716.
(3) 46 l.T.R. 609.
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C.I.T. v.