Gopalan Nambiyar, C.J. -
(1.) THE following question of law has been referred for our opinion by the Income-tax Appellate Tribunal, Cochin Bench:
"Whether, on the facts and in the circumstances of the case, the order of the Inspecting Assistant Commissioner of Income-tax under Section 271(1)(c) passed on March 31, 1973, was barred by limitation?"
(2.) THE question arises with respect to the assessment year 1966-67. THE return was filed on December 1, 1966, and the assessment was "completed by order dated the 20th March, 1971. Penalty was imposed by order dated March 31, 1973. Section 275 of the I.T. Act, 1961, which provided the time-limit within which proceedings for imposition of penalty had to be completed was amended 'by the Taxation Laws (Amendment) Act (42 of 1970) with effect from April 1, 1971. THE section, after its amendment, permitted penalty proceedings to be completed within two years of the completion of the assessment order. It is beyond dispute that, but for this amendment, under the section as it stood previously, the penalty proceedings would be beyond the time-limit indicated by the earlier section. On these facts the Tribunal held that Section 275 was a procedural section which would govern the penalty proceedings at the time of the imposition. THE Tribunal held that Section 275 embodied a rule of limitation; that rules of limitation are rules of procedure and that the rules applicable are the rules which are in force at the time when the proceedings are taken. It relied upon certain passages from Mitra's Limitation Act and on a passage from the decision in Beepathuma v. Shankaranarayana, AIR 1965 SC 241. Counsel for the assessee contended before us that the view of the Tribunal that Section 275 is a procedural section cannot be supported in law, that the section was inextricably linked with certain substantive provisions of the Act relating to the imposition of the penalty and, such being the position, the principle that procedural sections have retrospective operation so as to affect pending proceedings, cannot apply. Counsel drew our attention to the various amendments introduced by the Taxation Laws (Amendment) Act, 1970, to Sub-section (4A) of Section 271, Sub-section (2) of Section 274 and Section 275. In particular, it was stressed that, as a result of these amendments, the range of the power of ITO to take penalty proceedings had itself been enlarged or widened so as to cover even cases where the concealment exceeds a sum of Rs. 25,000 with the qualification that such cases were to be referred to the IAC. THE provisions of Section 275 being inextricably linked with Section 274(2) which gave the above power, it was contended that it was wrong to regard Section 275 as dealing only with procedure, and thereby to apply it even to pending proceedings. THE principle of the decision of a Division Bench of this court in Hajee K. Assainar v. CIT  81 ITR 423 was stressed. THEre it was observed by this court (p. 428):
"But, where rights and procedure are dealt with together, the intention of the legislature may well be that the old rights are to be determined by the old procedure and that only the new rights under the substituted section are to be dealt with by the new procedure. If the procedural alteration is closely and inextricably linked with the changes simultaneously introduced in another part of the statute dealing with substantive rights and liabilities, it is not possible to give retrospective operation to the amendment regarding procedure unless the legislature has indicated such an intention either by express words or by necessary implication."
The provision considered in that Act was fundamentally different from the provision that we have to construe here. The Division Bench was there concerned with Section 271(1) of the I.T. Act, as amended by the Finance Act, 1964, deleting the words "deliberately" in Clause (c) of Section 271(1), and inserting an Explanation at the end of the said section. These formed integral parts of one scheme, and, in the nature of things, it was impossible to give retrospective effect to the one, and not to the other, or to regard only the one part and not the other, as procedural. This was all that the Division Bench stated.
Turning to the provisions here in question, there is some indication--however slight it be--afforded by the title to the section itself as "Bar of limitation for imposing penalties" implying that the provision embodied a rule of limitation and nothing more. The scheme of the provisions only confirms this impression. Counsel for the assessee drew our attention to the decision of the Supreme Court in S. S. Gadgil v. Lal & Co.  53 ITR 231 and in particular to the following observations from that judgment (p. 238):
"A proceeding for assessment is not a suit for adjudication of a civil dispute. That an income-tax proceeding is in the nature of a judicial proceeding between contesting parties, is a matter which is not capable of even a plausible argument. The income-tax authorities who have power to assess and recover tax are not acting as judges deciding a litigation between the citizen and the State: they are administrative authorities whose proceedings are regulated by statute, but whose function is to estimate the income of the taxpayer and to assess him to tax on the basis of that estimate. Tax legislation necessitates the setting up of machinery to ascertain the taxable income, and to assess tax on the income, but that does not impress the proceeding with the character of an action between the citizen and the State: Commissioners of Inland Revenue v. Sneath  17 TC 149, 164 (CA) and Shell Company of Australia Ltd. v. Federal Commissioner of Taxation  AC 275 (PC).
Again the period prescribed by Section 34 for assessment is not a period of limitation. The section in terms imposes a fetter upon the power of the Income-tax Officer to bring to tax escaped income. It prescribes different periods in different classes of cases for enforcement of the right of the State to recover tax."
(3.) FROM these observations, counsel would contend that Section 275 embodied a jurisdictional condition or a fetter on the right or jurisdiction of the officer and not a period of limitation. On a conspectus of the provisions and the scheme of the sections, we cannot accept this argument. The provision construed by the Supreme Court in Gadgil's case  53 ITR 231 was different, and the observations are understandable.
Our attention was called to a number of decisions which have considered the question. It is enough to refer to a few of them. The position was discussed in S. C. Praskar v. Vasantsen Dwarkadas  49 ITR (SC) 1. The principle of the decision was summed up and noticed by the Supreme Court in CIT v. Onkarmal Meghraj (HUF)  93 ITR 233. There it was observed (p. 240):
"It is a well-settled principle that no action can be commenced where the period within which it can be commenced has expired. It is unnecessary to cite authorities in support of this position. Does the fact that the second proviso says that there is no period of limitation make a difference ? The first thing to be noticed is that that provision was given retrospective effect only from April 1, 1952, though the Income-tax (Amendment) Act came into effect from May 24, 1953. Where it is intended that the retrospective effect should be without any limit it is usual and proper to provide that the amendment would have effect and would be deemed always to have had effect as if it had been part of the Act from its inception. That that was not done shows that the intention was only to give limited retrospective effect, that is to say, there would be no bar of limitation if it had not expired before April 1, 1952.
We will now refer to some of the decisions which were relied upon. In S. C. Prashar v. Vasantsen Dwarkadas  29 ITR 857 the effect of the amendment made to Section 34 were considered by the Bombay High Court. A Bench of the High Court consisting of Chagla C.J. and Tendolkar J. held that where the period mentioned in the substantive part of Section 34 had expired before the amendment in 1953, i.e., before 1st April, 1952, no action can be taken under that section. The court also took the view that the second proviso to Section 34(3) offended article 14 of the Constitution in so far as it affected third parties. That question has now been set at rest by the decision of this court in Income-tax Officer v. Murlidhar Bhagwan Das  52 ITR 335 as already noticed. In this court, out of the five judges who heard the appeal in Prashar v. Vasantsen Dwarkadas  49 ITR (SC) 1, two of the judges, Das J. and Kapur J., held that Section 31 of the Income-tax (Amendment) Act, 1953, did not operate as regards assessment years for which assessment or reassessment was barred before April 1, 1952, in accordance with Section 34 before it was amended in 1948. Hidayatullah J. and Raghubar Dayal J. took the contrary view. Sarkar J. expressed no opinion on the point. In J.P. Jani, ITO v. Induprasad Devshanker Bhatt  72 ITR 595, this court held that the Income-tax Officer cannot issue a notice under Section 148 of the Income-tax Act, 1961, in order to reopen the assessment of an assessee in a case where the right to reopen the assessment was barred under the 1922 Act at the date when the new Act came into force. It was held that Section 297(2)(d)(ii) of the 1961 Act was applicable only to those cases where the right of the Income-tax Officer to reopen an assessment was not barred under the repealed Act. This decision is broadly in line with the opinion of Das and Kapur JJ. in Prashar's case  49 ITR (SC) 1. The decision of this court relied upon by the appellant, in Income-tax Officer v. T. S. Devinatha Nadar  68 ITR 252, 260, which was a case under Section 35(5), which was introduced into the Income-tax Act by the 1953 amendment at the same time as the amendment to Section 34 does not really affect this position. This court observed:
'As we have already said, Sub-section (5) becomes operative as soon as it is found on the assessment or reassessment of the firm or on any reduction or enhancement made in the income of the firm that the share of the partners in the profit or loss of the firm had not been included in the assessment of the partner or if included was not correct. The completion of the assessment of the partner as an individual need not happen after April 1, 1952. The completed assessment of the partner is the subject-matter of rectification and this may have preceded the above-mentioned date. Such completion does not control the operation of the sub-section. In the result we find ourselves unable to concur in the decision or the reasoning in Atmala Nagaraj's case  46 ITR 609 (SC)'."