Case: Commissioner of Income Tax, Lucknow, and Another Vs. K. S. Rashid

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 Arm, 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 firms 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 to be ultra vires. In view of that decision the reassessment made in the year 1951 was 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. On 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. 2. 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 and Second Additional Income-tax Offier, Guntur v. Atmala Nagaraj, allowed the writ petition and quashed the impugned assessment orders. This appeal is brought against the decision of the High CourtIn Income-tax Officer, V Circle, Madras v. S. K. Habibullah , 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 firms 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 Nagarajs case dealt with a point slightly different from the point that was decided in S. K. Habibullahs case. 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 Habibullahs case, and extending the ratio of the decision that the revenue had no competence to carry out the rectification in question. 3. The correctness of the decision in Habibillahs case, as well as in Atmala Nagarajs case, came up for consideration before five judges Bench of this court in Income-tax Officer, Tuticorin v. T. S. Devinatha Nadar This court by a majority upheld the decision in Habibullahs case , but overruled the decision in Atmala Nagarajs case The relevant facts of the case before us are similar to those in Atmala Nagarajs case That being so, the order of the High Court cannot be upheld

Decision reasoning: 1[ds]This appeal is brought against the decision of the High CourtInx Officer,V Circle, Madras v. S. K. Habibullah , this court came to the conclusion that clause (5) of section 35 of the Indianx Act, 1922, which was enacted by thex (Amendment) Act, 1953, is not declaratory of theg 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. Thex 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 firms 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 Nagarajs case dealt with a point slightly different from the point that was decided in S. K. Habibullahs case. 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 Habibullahs case, and extending the ratio of the decision that the revenue had no competence to carry out the rectification in questionhis court by a majority upheld the decision in Habibullahs case , but overruled the decision in Atmala Nagarajs case The relevant facts of the case before us are similar to those in Atmala Nagarajs case That being so, the order of the High Court cannot be upheld