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Time limit for issuing notice u/s.148 — S. 149 and S. 150

Subject : Income Tax Law
Month-Year : May 2002
Author/s : Kishor Karia
Rajendra Chitale

Chartered Accountants
Topic : Time limit for issuing notice u/s.148 — S. 149 and S. 150
Article Details :

1.1   Introduction :

S. 147 of the Income-tax Act, 1961 (the Act) provides for assessments/reassessments of income escaping assessment subject to provisions contained in S. 148 to S. 153. This is popularly known as Reopening and Reassessment. For the purpose of making such Reassessment, notice u/s.148 is required to be issued after recording reasons for issuance of such notice (hereinafter referred to as ‘notice u/s.148 for reassessment’). Time limit for issuing such ‘notice u/s.148 for reassessment’ is provided in S. 149 which varies from 4 to 6 years (as per the amendment made by the Finance Act, 2001 with effect from 1-6-2001) depending upon the quantum of income escaping assessment. We are not concerned with other provisions dealing with time limit contained in these provisions for the issue to be considered in this write-up.

1.2  

S. 150(1) provides that the ‘notice u/s.148 for reassessment’ may be issued at any time for the purpose of making such reassessment in consequence of (or to give effect to) any finding or direction contained in an order passed : (a) by any authority in any proceedings under this Act by way of appeal, reference or revision (hereinafter referred to as ‘proceedings under this Act’) or (b) by a Court in any proceedings under any other Law [hereinafter referred to as ‘order of the Court passed under any other law’ — this part of the provision is introduced in S. 150(1) w.e.f. 1-4-1989]. These provisions override the provisions of S. 149 in which time limit (referred in para 1.1 above) for issuing ‘notice u/s.148 for reassessment’ are provided. Accordingly, notice u/s.148 can be issued at any time for making such reassessment for the purposes specified in S. 150(1) [hereinafter such notice is referred to as ‘consequential notice u/s.148 for reassessment’]. By and large, similar provisions are also made in S. 153 with which we are not concerned in this write-up.

1.3  

S. 150(2) provides that the provisions of S. 150(1) shall not apply in a case where the ‘consequential notice u/s.148 for reassessment’ is to be issued for an assessment year of which such reassessment could not have been made (applying time limit contained in other provisions of the Act) at the time when the order which was the subject matter of the appeal, reference, etc. was made. Accordingly, S. 150(2) provides limitation for issuing ‘consequential notice u/s.148 for reassessment’ (hereinafter referred to as ‘limitation on issue of consequential notice u/s.148 for reassessment’). We may also state that no specific amendment has been made in S. 150(2) in 1989 to include reference to ‘order of the Court passed under any other law’.

1.4  

In the past, the issue had come up as to whether ‘limitation on issue of consequential notice u/s.148 for reassessment’ provided in S. 150(2) applies to a case where ‘consequential notice u/s.148 for reassessment’ has to be issued on account of the finding or direction given in the ‘order of the Court passed under any other Law’ since there is no specific reference to such an order u/s.150(2). The Delhi High Court in the case of K. M. Sharma had taken a view that ‘limitation on issue of consequential notice u/s.148 for reassessment’ is not applicable if such notice is to be issued in consequence of (or for giving effect to) any finding or direction contained in any ‘order of the Court passed under any other Law’.

1.5  

The judgement of the Delhi High Court referred to in para 1.4 above came up for consideration before the Apex Court recently, and the issue referred to in para 1.4 has now been decided by the Apex Court. Therefore, it is thought fit to consider the same in this column.

K. M. Sharma v. ITO — 221 ITR 202 (Del.) :

2.1   The relevant facts of the case in the judgement were that the assessee’s lands were acquired under the Land Acquisition Act and the appropriate award was passed on 2-12-1967 as a result of which the assessee received a compensation of Rs.1,33,810 somewhere in 1981. On a reference application filed under the Land Acquisition Act, the Additional District Judge, Delhi (vide his judgement dated 31-7-1991) awarded a sum of Rs.1,10,20,624 which was received by the assessee between 15-10-1992 and 26-5-1993. This amount included interest of Rs.76,84,829 upto 18-5-1992 from which tax of Rs.8,60,701 was deducted at source. On 17-9-1993 the assessee informed the Income-tax Officer (ITO) that he has received the amount of the above referred interest and the same accrues from year to year in the past and yearwise break-up was also given to the ITO. The assessee took the stand that no tax was leviable on interest accruing upto 31-3-1982 as assessment for the same had become time-barred. The assessee also requested the ITO to issue notice u/s.147 for the remaining period to enable him to file his Return of Income and pay tax accordingly. On 31-3-1994, the appellant was served with notice u/s.148 of the Act for 16 assessment years (i.e. A.Ys. 1968-69 to 1971-72 and A.Ys. 1981-82 to 1992-93).
2.2  

The assessee filed a writ petition before the Delhi High Court challenging the notice issued u/s.148 for the A.Ys. 1968-69 to 1971-72 and for the A.Ys. 1981-82 and 1982-83 on the ground that time limit for issuing such notice u/s.149 has expired and the provisions of S. 150(1) are not attracted to the facts of the case of the assessee because there was no finding or direction of any Court to assess or recompute his income for the said years.

2.3  

On behalf of the assessee it was contended that the provisions of S. 150(1) of the Act are not applicable to the facts of the case of the assessee inasmuch as the said provisions do not confer any fresh power on the ITO to make assessment of escaped income without any time limit, there is no power to make such assessment in respect of those assessment orders which had become time-barred at the time of passing the relevant order as provided in S. 150(2). The amended portion of the provisions of S. 150(1) is effective from 1-4-1989 and is prospective and accordingly, the assessments which have become time-barred on that date cannot be reopened as provided in S. 150(2).

  2.3.1

On behalf of the Revenue it was contended that the objection was raised with regard to maintainability of the petition on the ground that the same has been made lmost after two years from the date of issue of ‘consequential notice u/s.148 for reassessment’ and in the meantime the reassessments have also been completed and therefore, the assessee has alternative remedy to contest the issue before the Appellate Authority. The issue of limitation of proceedings u/s.147 of the Act should be taken before the ITO and the appellate or revisional authorities under the Act and the same should not be considered by the High Court in Writ Jurisdiction.

2.4  

The High Court agreed with the contentions raised on behalf of the Revenue and stated that the writ petition is not maintainable. However, the Court further stated that since the petitioner has made elaborate arguments with regard to the validity of the aforesaid notices on the ground that they are time-barred, the Court feels inclined to look into the issues raised before it. Accordingly, the Court also decided to consider the issues on merit.

2.5  

The Court then referred to the provisions of S. 147 to S. 150 and stated that by virtue of S. 150(1), the bar of limitation for reopening of assessment to which certain period of limitation is prescribed u/s.149 gets lifted as if no period of limitation shall apply for initiation of such proceedings for reassessment under the specified circumstances. The Court then also stated that S. 150(2) provides a rider to the said provisions as if the same is in the nature of proviso to S. 150(1) providing that the provision of S. 150(1) shall not apply under the circumstances specified in S. 150(2).

2.6  

For the purpose of deciding the issue, the Court then referred to provisions of S. 150 which are reproduced hereunder :

“150.(1) Notwithstanding anything contained in S. 149, the notice u/s.148 may be issued at any time for the purpose of making an assessment or reassessment or recom-putation in consequence of or to give ef-fect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision *[or by a Court in any proceeding under any other law].”

* The portion bracketed above is inserted by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989.

“(2) The provisions of Ss.(1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that sub-section related to an assessment year in respect of which an assessment, reassessment or recomputation could not have been made at the time the 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 could not have been made at the time the 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.”

  2.6.1

After referring to the above provisions, the Court observed as under (pages 207/208) :

“On a closer reading of the aforesaid provisions the only interpretation that could be given to the aforesaid Section is that the bar of limitation as provided for in S. 149 shall not apply for reopening of assessments to certain periods of limitation, i.e., in a case where initiation of reassessment proceedings is in consequence of or to give effect to any finding or direction contained in the appellate order, such initiation of reassessment proceedings would be bad if the said proceedings are barred and any other provision of the Act on the date of the order which was the subject-matter of the appeal. It is, however, pertinent to note that the aforesaid provision u/s.150(2) which is in the nature of a proviso to S. 150(1) does not include within its ambit the expression ‘any finding or direction contained in an order passed by a Court in any proceedings under any other law’ appearing in S. 150(1) which was added to the statute with effect from April 1, 1989, and only relates to the subject-matter of the appeal, reference or revision alone. The aforesaid expression ‘any finding or direction contained in an order passed by a Court in any proceeding under any other law’ was not added by the Legislature to the provisions of S. 150(2) of the Income-tax Act.”

  2.6.2

After making the above referred observations on the provisions of S. 150, the Court finally decided the issue in favour of the Revenue and concluded as under(page 208) :

“An order passed in a land acquisition proceeding would definitely be included within the ambit of the expression used ‘any finding or direction contained in an order passed bya Court in any proceeding under any other law’. In the present case, the initiation of the reassessment proceedings is based on the findings or directions contained in the order passed by the reference Court in a land acquisition proceeding which, as is held hereinabove, is included within the aforesaid expression used in Ss.(2) of S. 150 of the Income-tax Act. In view of our aforesaid understanding of the provisions of S. 150, the interpretation that could be given thereto is that if there be an order of a Court including an order by a reference Court in a land acquisition proceeding, then the bar of limitation is automatically lifted and accordingly, for the years in question for which interest was paid to the petitioner, although initiation of reassessment proceedings could be barred under the provisions of S. 149, the same would stand as not barred under the provisions of S. 150(1) of the Act and consequently, the question of limitation would not arise for consideration. The provisions of S. 150(2) are not applicable to the facts and circumstances of the present case as it does not envisage within its ambit any finding or direction contained in the order of award passed by the reference Court in the land acquisition proceedings under the Land Acquisition Act . . . .”

2.7  

In view of the above, the Court decided the principle that for the purpose of issuing ‘consequential notice u/s.148 for reassessment’, limitation placed in S. 150(2) does not apply in a case where such notice is to be issued in consequence of (or for giving effect to) the ‘order of the Court passed under any other law’.

K. M. Sharma v. ITO — 254 ITR 772 (SC) :

3.1   The above referred judgement of the Delhi High Court came up for consideration before the Apex Court. To decide the issue, the Court noted the facts of the case referred to in para 2.1 above and the reasonings given by the Delhi High Court for non-applicability of S. 150(2), in a case where such notice is required to be issued in consequence of (or for giving effect to) the ‘order of the Court passed under any other law’.
3.2  

After hearing both the parties, the Court stated that a fiscal Statute more particularly a provision such as the present one regulating the 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 future and unforeseen events. The Court then stated that amendment made in S. 150(1) with effect from 1-4-1989 is prospective since the same is not expressed to be retrospective. Since the amendment is intended to lift the embargo on period of limitation u/s.149 on account of the ‘order of the Court passed under any other law’, the amended portion will have only prospective operation to assessments, which have not become final due to expiry of the period of limitation prescribed for assessment u/s.149 on that date.

3.3  

While dealing with the view expressed by the High Court as to non-applicability of S. 150(2) to the cases where ‘consequential notice u/s.148 for reassessment’ is to be issued in consequence of (or for giving effect to) the ‘order of the Court passed under any other law’, the Court stated as under (page 778) :

“We do not find the above reasoning of the High Court as sound. The plain language of Ss.(2) of S. 150 clearly restricts the application of Ss.(1) to enable the authority to reopen assessments which have not already become final on the expiry of the prescribed period of limitation u/s.149. As is sought to be done by the High Court, Ss.(2) of S. 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 provision u/s.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 Ss.(2) of S. 150 has that result. Ss.(2) intends to insulate all proceedings of assessments, 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 Ss.(2) corresponding to Ss.(1) as is the reasoning adopted by the High Court.”

3.4  

The Court then reversed the judgement of the High Court and held as under (pages 778/779) :

". . . . Ss.(2) aims at putting an embargo on reopening assessments, which have attained finality on the expiry of the prescribed period of limitation. Ss.(2) in putting such embargo refers to the whole of Ss.(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 Ss.(1) into Ss.(2) and coming to the conclusion that the reassessment proposed on the basis of the order 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 u/s.149 of the Act. On a combined reading of Ss.(1)as amended with effect from April 1, 1989, and Ss.(2) of S. 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 u/s.149.”

3.5   Finally, the Court concluded as under (page 780) :

“. . . . Our conclusion, therefore, is that Ss.(1) of S. 150, as amended with effect from April 1, 1989, does not enable the authorities to reopen assessments, which have become final due to bar of limitation prior to April 1, 1989, and this position is applicable equally to reassessments proposed on the basis of orders passed under the Act or under any other law.”

Conclusion :

4.1   In view of the above judgement it becomes clear that the amendment made in S. 150(1) with effect from 1-4-1989 referred to hereinbefore is prospective and provisions of S. 150(1) are not applicable in the cases where reopening of assessments have become time-barred on account of limitation prior to 1-4-1989.
4.2  

In view of the above judgement of the Apex Court, fortunately, it also becomes clear that the provisions of S. 150(2) providing ‘limitation on issue of consequential notice u/s.148 for re-assessment’ also applies to cases where such notice is to be issued in consequence of (or for giving effect to) the ‘order of the Court passed under any other law’.

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