Supreme Court of India
Commissioner Of Income-Tax, Lucknow ... vs K.S. Rashid on 23 July, 1971
Equivalent citations: [1972]85ITR118(SC), (1971)2SCC577A, 1973 TAX. L. R. 32, (1971) 2 S C C 577, (1972) 2 I T J 208, 1971 U P T C 741, 85 I T R 118, (1972) 2 S C J 329
Author: K.S. Hegde
Bench: A.N. Grover, K.S. Hegde
JUDGMENT K.S. Hegde, J.
1. This appeal by certificate has been brought by the Commissioner of Income-tax, Lucknow, and another. The respondent is one K.S. Rashid. He is ex-parte.
The Said K.S. Rashid is one of the partners in a firm, M/s. K.S. Rashid & Sons. He held one-third share in that firm. For the assessment year 1947-1948, the relevant accounting year being 1946-1947, he was assessed on November 15, 1949. The Income-tax Officer came to the conclusion that in the concerned assessment year, he had incurred a loss of Rs. 25,056. Thereafter, the Income-tax Investigation Commission reported that the firm's case (Rashid & Sons) had been under-assessed for many years including the assessment year 1947-48. In pursuance of that report, fresh assessment was made on that firm on May 30, 1951. This Court declared the provisions of Sections 5(1) and 5(4) of the Investigation Commission Act be ultra vires. In view of that decision the reassessment made in the year 1951 cancelled. But, fresh proceedings were started under Section 34 of the Indian Income-tax Act, 1922. On January 31, 1956, the Income-tax Officer, Delhi, reassessed the income of the firm at Rs. 6 24 833. The petitioners Share in the income for the year 1947-48 was fixed at Rs. 2,08,277 February 28, 1956, the Income-tax Officer, A-Ward Meerut, passed an order under Section 35(5) of the Indian Income-tax Act, 1922, holding that for the year 1947-48 the petitioner was liable to pay tax upon a net income of Rs. 2,08,277. A further order was made but there is no need to refer to that order because that order either stands or falls with the assessment order made by the Income-tax Officer, A-Ward, Meerut, on February 28, 1956.
The assessee challenged the order made by the Income-tax Officer, A-Ward, Meerut, under Section 35(5) by means of a writ petition under Article 226 of the Constitution before the High Court of Allahabad. The High Court, following the decision of this Court in Income-tax Officer, V Circle, Madras v. S.K. Habibullah (1) and Second Additional Income-tax Officer, Guntur v. Atmala Nagaraj (2) , allowed the writ petition and quashed the impugned assessment orders. This appeal is brought against the decision of the High Court.
In Income-tax Officer, V Circle, Madras v. S.K. Habibullah (1) , this Court came to the conclusion that Clause (5) of Section 35 of the Indian Income-tax Act, 1922, which was enacted by the Income-tax (Amendment) Act, 1953, is not declaratory of the pre-existing law, nor a matter relating to procedure, but affects vested rights, and must be deemed to have come into force only from 1st April, 1952. It has no greater retrospective effect than has been expressly granted to it and the power conferred by the said clause to rectify the assessment of a partner of a firm by including or correcting the share of the profit or loss of the firm can, therefore, be exercised only in the case of an assessment of a firm made on or after 1st April, 1952. The Income-tax Officer has no jurisdiction under the said clause to rectify the assessment of a partner consequent on the assessment of the firm, in cases where the firm's assessment was completed before 1st April, 1952. It may be noted that in this case the assessment was made before April 1, 1952, and the rectification after that date. The decision in Atmala Nagaraj's case (2) dealt with a point slightly different from the point that was decided in S.K. Habibullah's case (1) . In that case, the original assessment had been made before 1st April, 1952, but there was a reassessment after that date. The impugned rectification was based on the reassessment. This Court held, following the decision of Habibullah's case (1) , and extending the ratio of the decision that the revenue had no competence to carry out the rectification in question.
The correctness of the decision in Habibullah's case (1) , as well as in Atmala Nagaraj's case(2) , came up for consideration before five Judges Bench of this Court in Income-tax Officer, Tuticorin v. T. S. Devinatha Nadar (3) [1968] 68 I.T.R. 252 (S.C.). This Court by a majority upheld the decision in Habibullah's case (1) , but overruled the decision in Atmala Nagaraj's case (2) . The relevant facts of the case before us are similar to those in Atmala Nagaraj's case (1) . That being so, the order of the High Court cannot be upheld.
In the result, for the reasons mentioned earlier, we allow this appeal, set aside the order of the High Court and dismiss the writ petition. In the circumstances of the case, we direct the parties to bear their own costs in this Court as well as in the High Court.