S.s.gadgil, Income-Tax Officer, Bombay v. Lal And Company

1964 State of Madra1 v. C. 1. Coelho Sikri 1. 1964 April, 30. 72 SUPREME COURT REPORTS [1964] amount borrowed for the purchase of the plantation when the whole transaction of purchase and the working of the plantation is viewed as an integrated whole, is so closely related to the plantation that the expenditure can be said to be laid out or expended wholly and exclusively for the purpose of the plantation. In this connection, it is perti-nent to note that what the Act purports to .tax is agricul-tural income and not agricultural receipts. from the agri-cultural receipts must be deducted all expenses which in ordinary conunercial accounting must. be debited against the receipts. There is nothing in the Act which prohibits such expenses from being deducted. No farmer would treat interest paid on capital borrowed for the purchase of the plantation as anything but expenses, and as long as the deductions he claims, apart from any statutory prohi-bition, can be fairly said to lead to the determination of the true net agricultural income, these must be allowed under the Act. In principle, we do not. see any distinction between interest paid on. capital borrowed for the acquisi-tion of a plantation and that between interest paid on capi-tal borrowed for the purpose of running an existing planta-tion; both are for the purposes of the plantation. In the result, we agree with the High Court that the deduction claimed by the assessee fell within the scope of s. 5 ( e) of the Act, and that the whole of Rs. 22,628-9-8 and not merely Rs 1,570-10-7 sho_uld have been deducted from his assessable income. The appeal fails and is dis-missed with costs. Appeal dismissed. S. S. GADGIL, INCOME-TAX OFFICER, BOMBAY LAL AND COMPANY (K. SUBBA RAo, J. c. SHAH AND s. M. S!KRr, JJ.) Jnconu Tax-Assessment as agent of non-resident party-Time limit for issuing notice-Scope of amending statute extending time '\ limit-Validity of notice-Indian Income-tax A.ct 1922 (11 of 1922). 1. 34(1)(b)(iii) proviso. The appellant company was carrying on business in Bombay as commission agents. In the course of assessment proceedings for the year 1954-551 the Income-tax Officer noticed from the assessee"s books of account tnat the assessee had business connections with certain non-resident parties and found that the transactions disclosed that through the assessee those non-resident parties were receiving income, profits and gains. He considered that s. 43 of the Indian Income-tax Act, 1922, was applicable to the assessee and issued on March 27, 1957, a notice under s. 34 of the Act for assessment of the assessee as an agent of the said non-resident parties. The assessee pleaded, inter alia, that the proceedings intiated by the Income-tax Officer under s. 34 were barred since the notice issued by him was after the expiry of one year from the end of the assessment year 1954·55, but the Income.tax Officer rejected the contention relyin'g on the amendment made to the proviso to s. 34(1)(b)(iii) by the Finance Act, 1956, under which the period of one year was changed to two years. The amendment was given retrospective operation upto April 1, 1956, but since the power to issue a notice under the unamended Act had come to an end on Marcil 31, 1956, the question was whether the Income·tax Officer could issue a notice of assessment to a person as an agent of a non.resident party under the amended provision when the period prescribed for such a notice had before the amended Act came into force expired. HELD: The proceedings initiated by the Income·tax Officer by the notice dated March 27, 1957, were barred; the authority of the Income-tax Ofticer under the Indian Income·tax Act before it was amended by the Finance Act of 1956 having come to an end, the amending provision would not entitle him to commence a proceeding even though at the date when he issued the notJce it was within the period provided by the amendment. 1964 1964 74 1964 74 1964 75 1964 4 76 Section: CONCLUSION Notwithstanding the fa('t that there was no determinable point of time between the expiry of the time provided under the old Act and the commencement of the An1tndn1ent Act, in the absence of an express provision or clear implication, the legislature could not be said to have intended to attribute to the Amending provision a greater retros· pectivity than was expressly n1entioned. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 322 of 1963. Appeal from the Judgment and order dated April l, 1958 of the fonner Bombay High Court in Miscellaneous Application No. 327 of 1957. K. N. Rajagopala Sastry and R. N. Sachthey, for the appellant. S. S. Gadgil v. Lal and Co. Bishan Narain, S. P. Mehta, J. B. Dadachanji, 0. C. Mathur and Ravi11der Narain, for the• respondent. 1964 s. s. Gadgil V. Lal and Co. Shah J. April 30, 1964. The Judgment of the Court was delivered by SHAH, J .-Ml s Lal and Company hereinafter called the assessee carry on business in Bombay as commission agents. In the course of assessment proceedings for the year 1954-55 the assessee's books of account were examined by the Income-tax Officer and it was noticed that the assessee had business connections with certain non-resident parties. On M1rch, 12, 1957, the Income-tax Officer issued a notice calli:Jg upon the assessee to show caus0 why in respect of the assessment year 1954-55 the asscssee should not be treat-ed under s. 43 of the Indian Income-tax Act, 1922, as an agent in respect of twenty-five non-resident parties named in the notice. The assessee denied that he had "direct deal-ings" with any non-resident party and that in any event the proposed action was barred because the period prescrib-ed for initiation of proceeding had expired, and ' requested the Income-tax Officer to drop the proceeding. The Income-tax Officer B-III Ward, Bombay issued on March 27, 1957, a notice under s. 34 of the Indian Income-tax Act for assessment of the assessee as .an agent of the twenty-five named non-resident parties. The assessee submitted a return showing his- income as "nil''. The Income-tax Officer held that the transactions disclosed from the books of account -of the assessee clearly showed that the assessee "had regular business connection with'' non-resident parties, that through the assessee those non-resident parties were receiving income, profits and gains, and s. 43 was clearly applicable to the assessee there being definite business connection between the assessee and the named non-residents. He therefore treated the assessee as agent of the non-resident parties, under s. 43 of the Act. The Income-tax Officer also rejected the contention of the assessee that action under s. 34 was barred at the date of the notice issued to the assessee. Relying upon the first proviso to s. 34(l)(b)(iii) inserted by the Finance Act, 1956, the Income-tax Officer held that the Legislature had ਬਸ਼ਰਤੇ ਕਿ—(i) X = X(ii) X = X(iii) X = X 4 76 77 1964 by amendment extended the "time-limit in clear and express terms so as to cover" action under s. 34 against a person on whom the assessment or reassessment is to be made as an agent of a non-resident person under s. 43 of the Act for the assessment year 1954-55, and accordingly assessed the income of the assessee at Rs. 60,684, estimating the income of the parties residing outside the tax.1ble territories, in the absence of accounts to be Rs. 50,000. The assessee then filed a petition under Art. 226 of the Constitution in the High Court of Judicature at Bombay praying that a writ in the nature of mandamus or prohibition do issue restraining and prohibiting the Income-tax Officer from giving effect to or taking any steps or pro-ceedings by way of recovery or otherwise in pursuance of the orders of assessment. The assessee plead-ed, inter alia, that the proceedings for assessment nnder s. 34 of the Act commenced by the Income-tax Officer after the expiry of one year from the end of the assessment year 1954-55 were without the authority of law. The High Court of Bombay, following its earlier judgment in S. C. Prashar v. Vosantsen Dwarkadas(') held that at the date when the notice was issued, by reason of the proviso which was in operation under s. 34 (1) in respect of the assessment year 1954-55 the notice was out of time and that the period pro-vided thereby could not be extended by the Finance Act of 1956 so as to authorise the Income-tax Officer to issue a notice for assessment or reassessment of the assessce as statutory agent of a party, residing outside \he taxable territory. In the view of the High Court the notice dated March 27, 1957, was invalid, and a valid notice being a condition precedent to the exercise of jurisdiction under s. 34, the proceeding under s. 34 was not maintainable. Against the order of the High Court issuing writs prayed for by the assessee, with certificate of fitness this appeal is preferred by the Income-tax Officer, Bombay. In order to appreciate the contention raised by the assessee and which has found favour with the High Court, it is necessary to refer to the relevant provisions of s. 34. (1) 29 I.T.R. 857 S. S. Gadgil v. Lal and Cc' Shah J. S. S. Gadgil v. Lal and Co. Shah/. as they stood before the section was amended by the Finance Act, 1956. The clauses relevant prescribing the period within which notice may be issued n:ad as follows: he may in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, x x x a notice containing all or any of the require-ments which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or re-assess such income, profits or gains or recompute the loss or depreciation allowance; x x x Provided that- (ii) (iii) Where the assessment made or to be made is an .assessment made or to be made on a person deemed to be the agent of non-resident person under section 43, this sub-section shall have effect as if for the periods of eight years and four years a period of one year was substituted." By s. 18 of the Finance Act, 1956, s. 34 was extensively amended and cl. (iii) of the proviso was substituted by the following proviso: "Provided further that the Income-tax Officer shall not issue a notice under this sub-section for .any year after the expiry of two years from that year if the person on whom an assessment or re-assessment is to b1i made in pursuance of the notice is a person deemed to be an agent of non-resident person under section 43." 1964 Initially a notice of assessment or re-assessment under s. 34 ( 1) against a person deemed to be an agent of a non- 8 S.C.R. resident person under s. 43 could not be issued after the expiry of one year f!'.Om the end of the year of assessment: under the amended section this period was extended to two years from. the end of the relevant assessment year. In the course of assessment to income-tax for the year 1954-55 the relevant law applicable prescribed that a notice of assessment or re-assessment .against a person deemed to be an agent under s. 43 could not be issued after the expiry of one year from the .end of the assessment year. That period expired on March 31, 1956, and after that date no notice could be issued, relying upon the law as it stood before amendment for assessment or re-assessment treat-ing the assessee as an agent of a non-resident under s. 43. But. the Income-tax Officer sought recourse to the amended provision which gave him a period of two years from the end of the assessment year, for initiating assessment pro-ceedings, and the authority of the Income-tax· Officer to so act is challenged by the assessee. Section 18 of the Finance Act, 1956, is, it is common ground, not given retrospective operation before April 1. 1956. The question then is, whether the Income-tax Officer may issue a notice of .assessment to a person as an agent of a non-resident party under the amended provision when the period prescn'bed for such a notice had before the amended Act came into force expired? Indisputably the period for serving a notice of re-assessment under the unamendro section had expired, and there was in the Act as it then stood, no provision for extending the period beyond the end of one year from the year of assess-ment. The Income-tax Officer -could therefore commence a proceeding under s. 34 on March 27, 1957, only if the amended section applied and not otherwise. The amend-ing Act came into force after the period provided for the issue of a notice under s. 34 before it was amended had expired. It is true that there was no determinable point of time between the expiry of the prescribed time within which the n<?tice could have been issued against the assessee under s. 34 proviso (iii) before it was amended. But there was no overlapping period either. Prima facie, on the expiry of the period prescribed by s. 34 as it original-ly stood, there was no scope for issuing a notice unless tho S. S. Gadgik v. Lal and Co. Shah/. 196-1 S. S. Gadgil v. Lal and Co. Shah J: