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Krishna Mohan Agarwal v. C.I.T. - INCOME TAX REFERENCE No. 178 of 1985 [2007] RD-AH 7505 (24 April 2007)


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Court No. 37

Income Tax Reference No. 178 of 1985

Krishna Mohan Agrawal


Commissioner of Income Tax

Hon. Sushil Harkauli,J

Hon. Ajai Kumar Singh,J

The following question has been referred:-

" Whether, the Income-tax Appellate Tribunal was legally correct in holding that the amendment to Section 64(1) of the Income-tax Act,1961 brought about w.e.f. 1.4.1976 by the Taxation Laws (Amendment) Act, 1975 was applicable to the assessment year 1976-77 ?"

The amending Act known as Taxation Laws (Amendment) Act, 1975 (Central Act No. 41 of 1975) received the assent of President of India on 7.8.1975. By that Act one of the changes brought about  was in Section 64 of the Income Tax Act by virtue of Section 13 of that amendment Act. In substance the altered  situation is as follows:

Prior to this amendment if a minor child of the assessee was admitted to the benefit of a partnership, the income from such partnership accruing to the minor child  was to be taxed in the hands of the minor as income of the minor and was not to be added or clubbed to the income of the assessee (guardian of the minor).

Subsequent to the amendment such income was to be clubbed with the income of the assessee, and instead of being taxed in the hands of the minor, it was required to be taxed in the hands of assessee i.e. the guardian. In the case of Puspa Devi Vs. C.I.T. (1993) 203 ITR 42  a Division Bench of this Court considered the argument that the application of the amended Section 64 of the Income Tax Act required that the assessee to whose income, the minor child's income was to be added, must have some income of his own i.e., of the said assessee. This contention was rejected by the Division Bench. However, that decision of the Division Bench is not on the question whether the  said amendment brought about in the Income Tax Act, which has the effect of altering the charge or its rate or  any exemption rebate or deduction,causing alteration in the tax liability will apply to the previous year of the assessee, which has already passed before the amendment comes into force; or will apply only to the previous year of the assessee which is yet to come. Normally, we would think that the very nature of the liabilities imposed by the Income Tax Act requires advance notice to the assessee of the charge and its rate including exemptions, rebates etc.,  to enable him not only to plan out his taxation but also to discharge liabilities regarding deposit of the advance tax etc.

Every year when the Finance Act determines a new rate of tax or surcharge, it normally comes into effect w.e.f. 1st of April and it governs the previous year of the assessee which is to commence  thereafter i.e., with effect from that 1st April.

The reason is obvious that if such charge or rate of charge were to govern the previous year which has already gone by, there would be utter chaos, inasmuch as the assessee would have no idea in advance as to what would be the rate of tax or surcharge or exemption on his currently earned income and investments and he would not be able to either plan out his taxation or to discharge the various obligations of the assessee which arise under the Act throughout his 'previous year', from time to time.

Therefore, unless the amending Act provides otherwise either  expressly or by necessary implication, the normal  presumption would be that any amendment brought about, of the nature referred above, would apply only to the previous year which is yet to come  on or after the date on which such amendment is enforced.

As stated above, in this case the amendment relating to section 64 was enforced, by a notification w.e.f 1.4.1976. Therefore, relying upon the decisions in Wallace Brothers & Co., Ltd. Vs. Commissioner of Income Tax, Bombey City & Bombey Suburban District 1948 (XVI) ITR 240, Kalwa Devadattam & others Vs. Union of India & others 1963 (XLIX) ITR 165, Kesoram Industries Vs. Wealth Tax Commissioner, (Central) AIR 1966 SC 1370 and Chief Commissioner of Income Tax Vs. Rama Shanker (2005) 277 ITR 69 (All), we hold that the Tribunal was legally not correct in holding that the amendment in question enforced w.e.f. 1.4.1976 was applicable to the assessment year 1976-77 which would be relatable to the previous year 1975-76 inasmuch as that previous year was already over on the date of enforcement of the amendment.

Reference disposed of.




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