K. M. SHARMA VS INCOME TAX OFFICER
2004 P T D 2138
[254 I T R 772]
[Supreme Court of India]
Present: S.P. Bharucha, C.J.I., N.Santosh Hegde and D. M. Dharmadhikari, JJ
K. M. SHARMA
Versus
INCOME TAX OFFICER
Civil Appeal No. 7742 of 1997, decided on /01/.
th
April, 2002. (Appeal by special leave from the judgment and order, dated May 24, 1996, of the Delhi High Court in C. W. P. No. 1152 of 1996).
(a) Income‑tax‑‑‑
‑‑‑‑Reassessment‑‑‑Limitation‑‑‑Exception .to bar of limitation‑‑ Reassessment on basis of order under Income‑tax Act‑‑‑Amendment with effect from April 1, 1989, extending exception to reassessment on basis of order passed by a Court in any other proceeding under any other law‑ Excluding Assessments already barred before April 1, 1989‑‑ Amendment prospective‑‑‑Bar of limitation continues in cases which are already barred before April 1, 1989‑‑‑Indian Income Tax Act, 1961, Ss. 149 & 150(1), (2) (as amended with effect from April 1, 1989):
(b) Interpretation of Statutes‑‑‑
‑‑‑ Strict interpretation applies also to provisions regulating limitation
(c) Income‑tax‑‑‑‑
‑‑‑‑General principles‑‑‑Provisions imposing liability‑‑‑Not retrospective‑‑‑Law applicable‑‑‑Law in force in assessment years‑‑ Procedural provisions‑‑‑Not retrospective so as to affect finality of assessment unless there is clear contrary intendment. ‑‑‑[K. M. Sharma v. ITO (1996) 221 ITR 202 reversed].
The amendment to subsection (1) of section 150 of the Income Tax Act, 1961, extending the bar of limitation in cases of orders passed by a Court in proceedings under any other law is not expressed to be retrospective and, therefore, has to be held to be only prospective. The amendment to section 150(1), which intends to lift the embargo of the period of limitation under section 149 to enable the authorities to reopen assessments not only on the basis of orders passed in proceedings under the Income‑tax Act, but also on the basis of an order of a Court in any proceedings under any law has to be applied prospectively on or after April 1, 1989, when the amendment was introduced. The provisions of subsection (1), therefore, can have only prospective operation to assessments which have not become final due to the expiry of the period of limitation prescribed for assessments under section 149.
The plain language of subsection (2) of section 150 clearly restricts the application of subsection (1) to enable the authorities to reopen assessments which have not already become final on the expiry bf the period of limitation prescribed under section 149. Subsection (2), in placing an embargo on reopening of assessments which have attained finality on the expiry of the period of limitation prescribed under section 149, refers to the whole of subsection (1), intending thereby to insulate all assessments which have become final and may have been found liable to reassessment or re computation on the basis of either orders in proceedings under the Income‑tax Act or orders of Courts passed under any other law.
The appellant's agricultural lands were compulsorily acquired under sections 6 of the Land Acquisition Act, 1894, on December 2, 1967, granting compensation. On a reference under sections 18 of that Act, by his judgment dated July 31, 1991, the District Judge awarded Rs.1,10,20,624, of which the sum of Rs.41,96,496 .represented compensation for the lands and the balance of Rs.76,84,829 was towards interest on the compensation. Since the agricultural lands were acquired before April 1, 1970, capital gains tax was not leviable in relation to the acquisition, but income‑tax was leviable on the interest awarded on a year to year basis. The appellant informed the Income‑tax Officer that he had received Rs.76,84,829 as interest accruing year to year and assessable as such. The Income‑tax Officer served notices under section 148 of the Income Tax Act, 1961, for 16 assessment years 1968‑69 to 1971‑72 and 1981‑82 to 1992‑93, for bringing to tax the interest which had escaped assessment in those years. The appellant filed a writ petition challenging the notice for the assessment years 1968‑69 to 1971‑72 and 1982‑83 on the ground that the proposed reassessment had already become barred under section 149 on April 1, 1989, for which the relevant period of limitation was four years or seven years depending on the quantum of liability to tax. The High Court dismissed the writ petition rejecting the contention of the appellant that under section 150(2) the reassessments had already become barred under section 149 before section 150(1) was amended with effect from April 1, 1989, and holding that the bar of limitation under section 149 was not attracted by virtue of section 150(1) because the notices of reassessment were based upon awards passed by the Court of the District Judge on a reference under the Land Acquisition Act. On appeal to the Supreme Court:
Held, reversing the decision of the High Court, that the provisions of section 1500), as amended with effect from April 1, 1989, did not enable the authorities to reopen assessments which had become final due to the bar of limitation prior to April 1, 1989, and this position was equally applicable to reassessments proposed on the basis of orders passed under the Income‑tax Actor under any other law.
The provisions of a fiscal statute, more particularly one regulating the period of limitation, must receive a strict construction. The law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation of litigants for an indefinite period on future unforeseen events. Proceedings which had attained finality under existing law due to bar of limitation cannot be held to open for revival unless the amended provisions are clearly given retrospective operation so as to allow upsetting of proceedings which had already concluded and attained finality.
A taxing provision imposing liability is governed by the normal presumption that it is not retrospective and the settled principle of law is that the law to be applied is that which is in force in the assessment year unless otherwise provided expressly or by necessary implication. Even a procedural provision cannot, in the absence of clear contrary intendment expressed therein, be given greater retrospectivity than is expressly mentioned so as to enable the authorities to affect finality of tax assessments or to reopen liabilities which have become barred by lapse of time.
Gadgil (S.S.) v. Lal & Co. (1964) 53. ITR 231 (SC) applied.
K.M. Sharma v. ITO (1996) 221 ITR 202 reversed.
B.B. Ahuja, Senior Advocate (R.R. Dwivedi, Durgainder Singh and Ramdhir Singh Jain, Advocates) for Appellant.
R.P. Bhatt, Senior Advocate, Ms. Lakhsmi Iyengar, B.V.B. Das and Ms. Sushma Suri, Advocates with him for Respondent.
JUDGMENT
D.M. DHARMADHIKARI, J.‑‑‑In this appeal, which is filed after obtaining special leave, the order, dated May 24, 1996, of the High Court of Delhi (see (1996) 221 ITR 202) has been assailed. The main question involved is on the application and interpretation of the provisions of section 150 of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
The relevant facts necessary for deciding the legal question raised are as under:‑‑
The appellant's land were acquired under section 6 of the Land Acquisition Act and an award was passed on December 2, 1967, by the Chief Commissioner of Delhi granting compensation in favour of the appellant. The Additional District Judge by Judgment, dated May 20, 1980, held the appellant entitled to 1/32 share of the compensation awarded under various awards and the appellant was granted total compensation in the sum of Rs.1,18,810 approximately in the year 1981.
On a reference under section 18 of the Land Acquisition Act, the learned Additional District Judge, Delhi, vide his judgment dated July 31, 1991, awarded a sum of Rs.1,10,20,624. The amount was paid to the appellant between October 15, 1992, and May 26, 1993. The amount paid represented principal sum of compensation of Rs.41,96,496 and interest in the sum of Rs.76,84,829 up to May 18, 1992. Before making the above payments, tax was deducted at source amounting to Rs.8,60,701.
Since the lands acquired were agricultural lands and were acquired prior to April 1, 1970, capital gains tax was not leviable but tax was leviable on interest earned on the amount awarded on year to year basis.
The appellant through counsel sent a letter, dated September 17, 1993, informing the Income‑tax Officer that he had received interest amount of Rs.76,84,829 and interest accrued from year to year was assessable in each year. Year wise break up of the interest was also given in the letter. According to the appellant, no tax was leviable on interest accruing up to March 31, 1982, as assessment for it had become barred by time. The appellant, therefore, requested that necessary action be taken under section 147 of the Act to enable the appellant as assessee to file his income‑tax return and pay tax accordingly.
On March 31, 1994, the appellant was served with the impugned notices under section 148 of the Act for 16 assessment years, i.e. 1968‑69 to 1971‑72 and assessment years 1981‑82 to 1992‑93.
The appellant, in the High Court, assailed the notices issued under section 148 of the Act for reassessment for the assessment years 1968‑69 to 1971‑72 and for the year 1982‑83 on the ground that the proposed reassessment for those assessment years had already become barred by time under section 149 of the Act, for which in the relevant periods a maximum period of four years or seven years limitation was prescribed depending upon the quantum of liability towards tax.
The High Court by the impugned judgment accepted the contention of the Department that the provisions of section 150(1) of the Act, as amended with effect from April 1, 1989, could be resorted to for reassessment to levy tax on the increased amount of interest earned by the appellant in the relevant assessment years. It was held that the bar of limitation prescribed under section 149 of the Act was not attracted by virtue of the provisions of section 150(1) because notices for such reassessments are based on the awards passed in the land acquisition proceeding by the Court of the Additional District Judge on a reference under section 18 of the Land Acquisition Act. Upholding the validity of the assessment proceedings initiated by the Department under section 148 of the Act, the High Court rejected the contention of the assessee that subsection (2) of section 150 of the Act is an explanation to subsection (1) and proceedings for reassessment, which had already become barred by time under section 149 of the Act before April 1, 1989, could not have been commenced on the amended provisions of subsection.(1) of section 150.
To appreciate the contention advanced by learned counsel for the parties and the decision of the High Court, it is necessary to reproduce for critical examination the provisions of section 150 (1) and. (2) of the Act. The provisions reads as under:‑‑
"150 (1). Notwithstanding anything contained in section 149, the notice under section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceedings under this Act by way of appeal, reference or revision (or by a Court in any proceeding under any other law).
[The portion bracketed and underlined above is inserted by the Director Tax Law (Amendment)) Act, 1987, with effect from April 1, 1989.]
The provisions of subsection (1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that subsection relates to an assessment year in respect of which an assessment, reassessment or recomputation could not have been made at the time of order which was the subject‑matter of the appeal, reference or, revision, as the case may be, was made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken."
Section 149 of he Act prescribes a maximum period of four or seven years depending upon the quantum of tax as mentioned in the said section for initiating reassessment proceedings. Section 150(1) states that the period of limitation prescribed in section 149 is not applicable, if the reassessment is proposed on the basis of any order passed by any "authority in any proceedings under the Act by way of appeal, reference or revision " or "by a Court in any proceeding under any other law". Subsection (2) of section 150, however, makes it clear that reassessment permissible under subsection (1) of section 150 would not be available to the Department where the period of limitation for such assessment or reassessment has expired at the time it is proposed to be reopened. In subsection (1) of section 150, by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989, the words "or by a Court in any proceedings under any other law" were inserted which are shown in brackets with underline in the section reproduced above.
The main question that has been raised on behalf of learned counsel appearing for the parties is whether the provisions of sub section (1) of section 150 as amended can be availed of for reopening assessments, which have attained finality and could not be reopened due to bar of limitation, that was attracted at the relevant time to the proposed reassessment proceedings under the provisions of section 149 of the Act.
The submission made on behalf of the appellant is that neither the provisions of subsection (1) nor subsection (2) can be read as giving more than the intended operation to the said provision. The provisions, it is argued, do not permit the authorities to reopen assessments, which have become final and reassessment of which had become barred by time before April 1, 1989, when section 150(1) was amended. Reliance is placed on the decision of this Court in S.S. Gadgil v. Lal and Co. (1964) 53 ITR 231).
Learned counsel appearing on behalf of the Department has made an effort to persuade this Court to accept his construction of the provisions of section 150(1) and (2) of the Act. It is argued that it is for the specific purpose of assessing income, which might accrue on the basis of any decision of any Court in any proceeding in any other law that the provision has been amended to lift the bar of limitation for reassessment.
A fiscal statute more particularly a provision such as the present one regulating period of limitation must receive strict construction. The law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigants for an indefinite period on future unforeseen events. Proceedings, which have attained finality under existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded and attained finality. The amendment to subsection (1) of section 150 is not expressed to be retrospective and, therefore, has to be held as only prospective. The amendment made to subsection (1) of section 150 which intends to lift the embargo of period of limitation under section 149 to enable the authorities to reopen assessments not only on the basis of orders passed in proceeding under the Income‑tax Act but also on the order of a Court in any proceedings under any law has to be applied prospectively on or after April 1, 1989, when the said amendment was introduced to subsection (1). The provision in subsection (1), therefore, can have only prospective operation to assessments, which have not become final due to expiry of the period of limitation, prescribed for assessment under section 149 of amendment to subsection (1) would enable the authorities to reopen assessments, which had already attained finality due to bar of limitation prescribed under section 149 of the Act as applicable prior to April 1, 1989, would amount to giving subsection (1) a 'retrospective operation which is neither expressly nor impliedly intended by the amended subsection.
On behalf of the assessee before the High Court and in this Court reliance has been placed on the provisions contained in sub section (2) of section 150. It is submitted that the provision contained in subsection (2) of section 150 is in the nature of clarification or explanation to subsection (1). Subsection (2) makes it clear that the embargo of the period of limitation lifted under subsection (1) for proposed reassessments based on orders in proceedings appeal, reference or revision, as the case may be, would not apply to assessments which have attained due to bar of limitation applicable at the relevant time.
The High Court rejected the above contention of the assessee on the ground that on the amendment introduced with effect from April 1, 1989, in subsection (1), which enables reopening of assessments based on any order of "a Court in any proceedings in any law", there is no corresponding amendment made in subsection (2) of section 150 to bar reassessments based on orders of Court passed in any proceedings in any law in case where the prescribed period of limitation for reassessment had already expired.
We do not find the above reasoning of the High Court is sound. The plain language of subsection (2) of section 150 clearly restricts the application of subsection (1) to enable the authority to reopen assessments which had not already become final on the expiry of the prescribed period of limitation under section 149. As is sought to be done by the High Court, subsection (2) of section 150 cannot be held applicable only to reassessments based on orders "in proceedings under the Act" and not to orders of Court "in proceedings under any other law". Such an interpretation would make the whole provisions under section 150 discriminatory in its application to assessments sought to be reopened on the basis of orders under the Income‑tax Act and other assessments proposed to be reopened on the basis of orders under any other law. The interpretation, which creates such unjust and discriminatory situation, has to be avoided. We do not find that subsection (2) of section 150 has that result. Subsection (2) intends to insulate all proceedings of assessment, which have attained finality due to the then existing bar of limitation To achieve the desired result it was not necessary to make any amendment in subsection (2) corresponding to subsection (1), as is the reasoning adopted by the High Court.
Subsection (2) aims at putting an embargo on reopening assessment, which have attained finality on the expiry of the prescribed period of limitation. Subsection (2) in putting such embargo refers to the whole of subsection (1) meaning thereby to insulate all assessments, which have become final and may have been found liable to reassessments or recomputation either on the basis of orders in proceedings under the Act or orders of Courts passed under any other law. The High Court, therefore, was in error in not reading the whole of the amended subsection (1) into subsection (2) and coming to the conclusion that the reassessment proposed on the basis of the orders of the Court in proceedings under the Land Acquisition Act could be commenced even though the original assessments for the relevant years in question have attained finality on the expiry of the period of limitation under section 149 of the Act. On a combined reading of subsection (1) as amended with effect from April 1, 1989, and subsection (2) of section 150 as it stands, in our view, a fair and just interpretation would be that the authority under the Act has been empowered only to reopen assessments, which have not already been closed and attained finality due to the operation of the bar of limitation under section 149.
This Court took a similar view in the case of S.S. Gadgil v. Lal & Co. (1964) 53 ITR 231 its a somewhat comparable situation arising from the retrospective operation given to section 34(1) of the Indian Income‑tax Act, 1922, as amended with retrospective effect from April 1, 1956, by the Finance Act of 1956. In the case of S.S. Gadgil (1964) 53 ITR 231 (SC) admittedly under clause (iii) of the proviso to section 34(1) of the Indian Income‑tax Act, 1922, as it then stood, a notice to assessment or reassessment Could not be issued against a person deemed to be an agent of a non‑resident under section 43, after the expiry of one year from the end of the year of assessment. The section was amended by section 18 of the Finance Act, 1956, extending his period of limitation to two years from the ends of the assessment years. The amendment was, given retrospective effect from April 1, 1956. On March 12, 1957, the Income‑tax Officer issued a notice calling upon the assessee to show cause why, in respect of the assessment year 1954‑55, the assessee should not be treated as an agent under section 43 in respect of‑certain non‑residents. The case of the assessee, inter alia, was that the proposed action was barred by limitation as the right co commence proceedings of assessment against the assessee as an agent of non resident for the assessment year 1954‑55 ended on March 31, 1956, under the Act before it was amended in 1956. This Court in the case of S.S. Gadgil v. Lal & Co. (1964) 53 ITR 231 accepted the contention of the assessee and held as under (page 240).
"The Legislature has given to section 18 of the Finance Act, 1956, only a limited retrospective operation, i.e. up to April 1, 1956, only. That provisions must be read subject to the rule that in the absence of an express provision or clear implication, the Legislature does not intend to attribute to the amending provision a greater retrospective than is expressly mentioned, nor to authorise the Income‑tax Officer, to commence proceedings which before the new Act came into force had by the expiry of the period provided become barred."
On a proper construction of the provisions of section 150(1) and the effect of its operation from April 1, 1989, we are clearly of the opinion that the provisions cannot, be given restrospective effect prior to April 1, 1989, for assessments which have already become final due to the bar of limitation prior to April 1, 1989. The taxing provision imposing at, liability is governed by the normal presumption that it is not retrospective and the settled principle of law is that the law to be applied is that which is in force in the assessment year unless otherwise provided expressly or by necessary implication. Even a procedural provision cannot in the absence of clear contrary intendment expressed therein be given greater retrospectivety than is expressly mentioned so as to enable the authorities to affect the finality of tax assessments or to open up liabilities, which have become barred by lapse of time. Our conclusion, therefore, is that subsection (1) of section 150, as amended with effect from April 1, 1989, does not enable the authorities to reopen assessment, which have become final due to bar of limitation prior to April 1, 1989; and this position is applicable equally to re‑assessments proposed on the basis of orders passed under the Act or under any other law.
As a result of the discussion aforesaid, the appeal is allowed. The judgments of the High Court of Delhi, dated May 24, 1996, is hereby set aside. As prayed in the petition, the impugned notices issued by the respondent of the Income‑tax Department under sections 148 and 142 of the Act against the appellants for the assessment years 1968‑69 and 1971‑72 and 1981‑82 are hereby quashed. The appeal stands allowed with costs.
M. B. A./1100/FCAppeal allowed.