Holding

The amendment to Section 150(1) is prospective; it does not empower the tax authorities to reopen assessments that had become final due to the limitation bar before 1 April 1989.

Summary

K.M. Sharma received compensation and interest for land acquired under the Land Acquisition Act. The Income Tax Department issued reassessment notices under Section 148 for assessment years 1968-69 to 1971-72 and 1981-82, alleging tax on the interest received. Sharma contended that the reassessments were barred by the limitation period prescribed in Section 149, which had expired before the amendment to Section 150(1) of the Income Tax Act (effective 1 April 1989). The Delhi High Court held that the amendment removed the limitation bar even for assessments already final. The Supreme Court examined the language of Sections 150(1) and 150(2) and held that the amendment was prospective only and could not be applied retrospectively to reopen assessments that had become final before 1 April 1989. Consequently, the reassessment notices were quashed.

Issues considered

Whether the amendment to Section 150(1) of the Income Tax Act, 1961, effective from 1 April 1989, has retrospective effect to permit reassessment of assessments barred by Section 149 before that date.
Whether Section 150(2) limits the operation of Section 150(1) to assessments that have not already become final due to the limitation period.
Whether the amendment applies to orders of courts in proceedings under laws other than the Income Tax Act.
Interpretation of fiscal statutes with respect to retrospectivity.

Legislation cited

Direct Tax Laws (Amendment) Act, 1987
Income Tax Act, 1961s. 14(7), s. 147, s. 148, s. 149, s. 150(1), s. 150(2)
Land Acquisition Act, 1894s. 18, s. 6

Subjects

Income TaxReassessmentLimitation periodRetrospective legislationSection 150Fiscal statute interpretationLand acquisition compensationTax liability

Judgment

--- . K.M. SHARMA A
. v.
INCOME TAX OFFICER, WARD 13 (7) NEW DELHI

APRIL 11, 2002

[S.P. BHARUCHA, CJ., N. SANTOSH HEGDE AND D.M. B
DHARMADHIKA13J, JJ.]

j Income Tax Act, 1961 : Sections 147, 148 and 149.

Section 150(1) [As amended with effect from 1.4.1989} and Section c
150(2).

Income Tax-Assessee---Receipt of interest on compensation for· land
acquisition-Assessment-Limitation-Reassessment to levy tax-Permissibility
o~Held amendment to Section 150(1) does not empower authorities to reopen
assessment which have become final due to bar of liniitation prior to D
'
amendment~Section 150(2) is also applicable to court orders apart from
income-tax proceedings.
'
Fiscal statute-Interpretation of-Provision imposing liability-Held such
a law is not retrospective in the absence of contrary intendment.
E
Section 150(1) of the Income Tax Act, 1961, as amended by Direct Tax
Laws (Amendment) Act, 1987 w.e.f. 1.4.1989 provides 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 proceedings under any other law.' The question involved in this F
appeal is whether Section 150(1) can be availed for re-opening assessments,
which have attained finality and could not be re-opened due to bar of
limitation, that was attracted at the relevant time to the proposed reassessment
proceedings under the provisions of Section 149. For acquisition of his land
the appellant was paid between 15.10.1992 and 26.5.1993 compensation and G
' _J
interest thereon. Revenue issued notices to the appellant for reassessment to
levy tax on the increased amount of interest for the assessment years 1968 to
1969 to 1971-72 and 1981-1982. The appellant-assessee challenged the validity
of these notices contending that the provision contained in sub-section (2) of
Section 150 is in the nature of clarification or explanation to sub-section (I).
1047
H
1048 SUPREME COURT REPORTS [2002] 2 S.C.R.

A Sub-section (2) makes it clear that i~he embargo of period of limitation lifted
under sub-section (1) for proposed reassessments based on Order in
proceedings, appeal, reference or revision, as the case may be, would not apply
to assessments which have attained finality due to bar of limitation applicable
at the relevant time. The High Court upheld the validity of the assessment
proceedings on the ground that on the amendment introduced with effect from
B 1.4.1989 in sub-section (1), which enables reopening of assessment based on
any Order of 'Court in any proceedings in any law', there is no corresponding
amendment made in sub-section (2) of Section 150 to bar reassessment based
on Order of Court passed in any proceedings in any law in cases where
prescribed period of litigation for reassessment had already expired. l
c In appeal to this Court it was contended on behalf of the appellant-
assessee that the provisions contained in Section 150(1) and (2) do not permit
the authorities to reopen assessments, which have become final and
reassessment of which had become barred by time before 1.4.1989 when
Section 150(1) was amended.
D
Allowing the appeal and setting aside the impugned judgment, the Court

HELD: 1. Sub-section (1) of Section 150 of the Income Tax Act, 1961
as amended with effect from 1.4.1989, does not enable the authorities to reopen
assessments, which have become final due to bar of limitation prior to 1.4.1989
E and this position is applicable equally to reassessments proposed on the basis
of Orders passed under the Act or under any other law. [1056-D)

2. On a combined reading of sub-section (1) as amended with effect from
1.4.1989 and sub-section (2) of section 150, it is clear that the authority under
the Act has been emppwered only to reopen assessments, which have not
F already been closed and attained finality due to the operation of the bar of
limitation under Section 149. The High Court, therefore, was in error in not
reading whole of amended sub-section (1) into sub-section (2) and coming to
the conclusion that reassessment, proposed on the basis of order of Court in
proceedings under Land Acquisition Act, could be commenced even though
G the original assessments for the relevant years in question have attained
finality on expiry of period of limitation under Section 149 of the Act.
(1055-C]

3. Sub-se~tion (2) of Section 150 cannot be held applicable only to J

reassessment based on Orders 'in proceedings under the Act' and not to
H Orders of Court 'in proceedings under aay other law'. Such an interpretation r
I
r-
~
K.M. SHARMA v. I.T.O. 1049
would make the whole provision under Section 150 discriminatory in its A
application to assessments sought to be reopened on the basis of Orders under
the IT Act and other assessments proposed to be reopened on the basis of
Orders under any other law. Interpretation, which creates such unjust and
discriminatory situation, has to be avoided. [1054-E, F]

4. Taxing provision imposing a liability is governed by normal B
presumption that it is not retrospective and 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 C
the authorities to affect finality of tax assessment or to open up liabilities,
which have become barred by lapse of time. [1056-C-D]

5. Fiscal statute more particularly on a provision such as the present
one regulating period of limitation must receive strict construction. Law of
limitation is intended to give certainty and finality to legal proceedings and D
to avoid exposure to risk of litigation to litigant for 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 retrosp.ective operation so as to allow
upsetting of proceedings, which had already been concluded and attained
finality. [1053-D] E
6. The amendment to sub-section (1) of Section 150 is not expressed to
be retrospective and, therefore, has to be held as only prospective. The
provision in sub-section (1) therefore can have only prospective operation to
assessments, which have not become final due to expiry of the period of F
limitation prescribed for assessment under Section 149 of the Act.
[1053-E, F)

To hold that the amendment to sub-section (1) would enable the

-
- .J
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 1.4.1989, would amount to giving sub-section (1) a retrospective operation
which is neither expressly nor impliedly intended by the amended sub-section.
Consequently, the notices issued by the Income Tax Department against the
G

appellant are quashed. (1053-G-H; 1056-F]

S.S. Gadgil v. Lal and Co. (1964) 53 ITR 231, relied on. H
1050 SUPREME COURT REPORTS [2002) 2 S.C.R.

A CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7742 of
1997.

From the Judgment and Order dated 24.5.96 of the Delhi High Court
in C~ W.P. No. 1152 of 1996.

B B.B. Ahuja, R.R. Dwivedi, Durgainder Singh and Randhir Singh Jain
for the Appellant.

R.P. Bhatt, Ms. Lakshmi Iyengar and B.V.B. Das for Ms. Sushma Suri .,
for the Respondent.
'

c The Judgment of the Court was delivered by

DHARMADHIKARI, J. In this appeal, which is filed after obtaining
special leave, the Order dated 24th May, 1996 of the High Court of Delhi 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
D (hereinafter referred to as the Act).

The relevant facts necessary for deciding the legal question raised are
as under: -

I. The appellant's lands were acquired under Section 6 of the Land
E Acquisition Act and an award was passed on 2.12.1967 by the Chief
Commissioner of Delhi granting compensation in favour of the appellant.
The Additional District Judge by Judgment dated 20.5.1980 held the appellant
entitled to 1/32 share of the compensation awarded ufitler various awards and
the appellant was granted total compensation in the sum of Rs. l, 18,810
F approximately in the year 1981.

2. On a reference under Section 18 of the Land Acquisition Act, the
learned Additional District Judge, Delhi vi de his Judgment dated 31. 7 .1991
awarded a sum of Rs. 1,10,20,624. The amount was paid to the appellant
between 15.10.1992 and 26.5.1993. The amounts paid represented principal
G sum of compensation of Rs. 41,96,496 arid interest in the sum of Rs. 76,84,829
upto 18.5.1992. Before making the above payments, tax was deducted at
source amounting to Rs. 8,60,701.

3. Since the lands acquired were agricultural lands and were acquired
prior to 1.4.1970, capital gains tax was not leviable but tax was leviable on
H interest earned on the amount awarded on year to year basis.
K.M. SHARMA v. I.TO. [DHARMADHIKARI, J.] 1051

4. The appellant through counsel sent a letter dated 17.9.1993 informing A
the ITO 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 31.3 .1982 as assessment for it had
become barred by time. The appellant, therefore, requested that necessary B
action be taken under Section 14 7 of the Act to enable the appellant as
assessee to tile his Income Tax Return and pay tax accordingly.

5. On 31.3.1994, the appellant was served with impugned notices under
Section 148 of the Act for 16 assessment years i.e., 1968-69 to 1971-72 and
J assessment years 1981-82 to 1992-93. C
6. 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 maximum period of four D
., years or seven years limitation was prescribed depending upon the quantum
of liability towards tax.

7. 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 1.4.1989, could be resorted to for reassessment to levy tax E
on the increased amount of interest earned by the appellant in the relevant
assessment years. It was held that bar of limitation prescribed under Section
149 of the Act was not attracted by virtue of the provisions of Section 150
...) (I) because notices for such reassessments are based on the awards passed in
the land acquisition proceedings by the Court of the Additional District Judge F
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 sub-section (2) of Section 150 of the Act is an explanation to sub-section
(I) and proceedings for reassessment, which had already become barred by
time under Section 149 of the Act before 1.4.1989, could not have been G
commenced on the amended provisions of sub-section (I) of Section 150.

8. To appreciate the contentions 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 read as under: H
1052 SUPREME COURT REPORTS (2002] 2 S.C.R.

.. A "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 proceeding under this Act
by way of appeal, reference or revision [or by a Court in any
B proceeding under any other law]

[The portion bracketed and underlined above is inserted by the Direct
Tax Laws (Amendment) Act, 1987 with effect from 1.4.1989.] ... t
(2) The provisions of sub-section (1) shall not apply in by case where
c any such assessment, reassessment or recomputation as is referred to
in that sub-section relates to an assessment year in respect of \Vhich
(
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
D
assessment, reassessment or recomputation may be taken."
,..,
9. Section 149 of the Act prescribes maximum period of four or seven #

years depending upon the quantum of tax as mentioned in the said Section
for initiating reassessment proceedings. Section l 50 (1) states that the period
,,,.
E of limitation prescribed in Section 149 is not applicable, if the reassessment
r
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
Court in proceedings under any other law'. Sub-section (2) of Section 150,
however, makes it cle<ir that reassessment permissible under sub-section (I)
of Section 150 would not be available to the Department where the period of
F limitation for such assessment or reassessment has expired at the time it is
proposed to be reopened. In sub-section (1) of Section 150, by Direct Tax
Laws (Amendment) Act, 1987 with effect from 1.4.1989, the words 'or by
a Court in any proceeding under any other law' were inserted which are
shown in bracket with underline in the Section reproduced above.
G 10. The main question that has been raised on behalf of the learned
counsel appearing for the parties is whether the provisions of sub-section (I)
of Section 150 as amended can be availed 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
H under the provisions of Section 149 of the Act.
K.M. SHARMA v. I.T.0. [DHARMADHIKARI, J.] 1053

11. The submission made on behalf of the appellant is that neither the A
provisions of sub-section (I) nor sub-section (2) can be read as giving more
than 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 uf which had become barred by time before 1.4.1989 when
Section 150(1) was amended. Reliance is placed on the decision of this Court B
in S.S.Gadgil v. Lal and Co. reported in [1964] 53 !TR 231.

12. The 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 C
decision of any Court in any proceeding in any other law that the provision
has been amended to lift bar of limitation for reassessment.

13. Fiscal statute more particularly on a provision such as the present
one regulating period of limitation must receive strict construction. Law of
limitation is intended to give certainty and finality to legal proceedings and D
to avoid exposure to risk of litigation to litigant for 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 E
attained finality. The amendment to sub-section (I) of Section 150 is not
expressed to be retrospective and, therefore, has to be held as only prospective.
The amendment made to sub-section (1) of Section 150 which intends to lift
embargo of period of limitation under Section 149 to enable Authorities to
reopen assessments not only on the basis of Orders passed in proceedings
under the IT Act but also on Order of a Court in any proceedings under any F
law has to be applied prospectively on or after 1.4.1989 when the said
amendment was introduced to sub-section (I) . The provision in sub-section
(1) therefore can have only prospective operation to assessments, which have
not become final due to expiry of period of limitation prescribed for assessment
under section 149 of the Act.
G
14. To hold that the amendment to sub-section (I) 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 1.4.1989, would amount to giving sub-section (I) a retrospective operation
which is neither expressly nor impliedly intended by the amended sub-section. H
1054 SUPREME COURT REPORTS [2002] 2 S.C.R.

A I 5. 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 I 50. It is submitted that the provision contained in sub-section (2) of
Section I 50 is in the nature of clarification or explanation to sub-section (I).
Sub-section (2) makes it clear that the embargo of period of limitation lifted
under sub-section (I) for proposed reassessments based on .Order in
B proceedings, appeal, reference or revision, as the case may be, would not
apply to assessments which have attained finality due to bar of limitation
applicable at the relevant time.

I 6. The High Comt rejected the above contention of the assessee on the
C ground that on the amendment introduced with effect from 1.4.1989 in sub-
section ( l) , which enables reopening of assessment based on any Order of
'Court in any proceedings in any law', there is no corresponding amendment
made in sub-section (2) of Section 150 to bar reassessment based on Order
of Court passed in any proceedings in any law in cases where prescribed
period of litigation for reassessment had already expired.
D
17. We do not find the above reasoning of the High Court is sound. The
plain language of sub-section (2) of Section 150 clearly restricts application
of sub-section (1) to enable the Authority to reopen assessments which have
not already become final on the expiry of prescribed period of limitation
E under Section 149. As is sought to be done by the High Court, sub-section
(2) of Section 150 cannot be held applicable only to reassessments baseg 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 under Section I 50 discriminatory in its application to
assessments sought to be reopened on the basis of Orders under the IT Act
F and other assessments proposed to be reopened on the basis of Orders under
any other law. Interpretation, which creates such unjust and discriminatory
situation, has to be avoided. We do not find that sub-section (2) of section
150 has that result. Sub-section (2) intends to insulate all proceedings of
assessments, which have attained finality due to the then existing bar of
G limitation. To achieve the desired result it was not necessary to make any
amendment in sub-section (2) corresponding to sub-section (1) , as "is the
reasoning adopted by the High Court.

18. Sub-section (2) aims at putting embargo on reopening assessments,
which have attained finality on expiry of prescribed period of limitation.
H Sub-section (2) in putting such embargo refers to whole of sub-section (I)
K.M. SHARMA v. l.T.O. [DHARMADHIKARI, J.] ] 055

meaning thereby to insulate all assessments, which have become final and A
may have been found liable to reassessments or re-computation either on the
basis of Orders in proce~dings under the Act or Orders of Comts passed
under any other Jaw. The High Court, therefore, was in errof in not reading
whole of amended sub-section (I) into sub-section (2) and coming to the
conclusion that reassessment proposed on the basis of order of Court in
proceedings under Land Acquisition Act could be commenced even though B
the original assessments for the relevant years in question have attained finality
on expiry of period of limitation under Section 149 of the Act. On a combined
) reading of sub-section (I) as amended with effect from 1.4.1989 and sub-
section (2) of Section 150 as it stands, in our view, a fair and just interpretation
-I would be that the Authority under the Act has been empowered only to C
reopen assessments, which have not already been closed and attained finality
due to the operation of the bar of limitation under Section 149.

19. This Court took similar view in the case of S.S. Gadgil (supra) in
somewhat comparable situation arising from the retrospective operation given
to Section 34(I) of Income Tax Act, 1922 as amended with retrospective D
effect from 1.4. I956 by the Finance Act of 1956. In the case of S.S. Gadgil
(supra) admittedly under clause (iii) of the proviso to Section 34(I) of the
Indian Income Tax Act, 1922, as it then stood, a notice of 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 E
the year of assessment. The Section was amended by Section 18 of the
Finance Act, 1956, extending this period of limitation to two years from the
end of the.assessment year. The amended was given retrospective effect from
April l, 1956. On March 12, 1957, the Income Tax Officer issued a notice
calling upon the assessee to show cause why, in respect of the assessmenf
year 1954-55, the assessee should not be treated as an agent under Section F
43 in respect of certain non-residents. The case of the assessee, inter alia,
was that the proposed action was barred by limitation as right to commence
proceedings of assessment against the assessee as an agent of non-resident
for the assessment year 1954-55 ended on 31.3.1956, under the Act before
it was amended in 1956. This Court in the case of S.S. Gadgil (supra) accepted G
the contention of the assessee and held as under:

" ....... 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 provision must be read subject to the rule that in the
absence of an express provision or clear implication, the legislature H
1056 SUPREME COURT REPORTS (2002] 2 S.C.R.

A does not intend to attribute to the amending. provision a greater
retrospectivity than is expressly mentioned, nor to authorise the
Income-tax Officer to commence proceedings which before the new
Act crune into force had by the expiry of the period provided become
barred."

B 20. On a proper construction of the provisions of Section 150 (I) and
the effect of its operation from 1.4.1989, we are clearly of the opinion that
the provisions cannot be given retrospective effect prior to 1.4.1989 for
assessments which have already become final due to bar of limitation prior
to 1.4.1989. Taxing provision imposing a liability is governed by normal
C presumption that it is not retrospective and. settled principle of law is that the
I-
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 open up liabilities,
"•> D which have become barred by lapse of time. Our conclusion, therefore, is that
sub-section (I) of Section 150, as amended with effect from l.4.1989, does
not enable the Authorities to reopen assessments, which ~ave become final
due to bar of limitation prior to 1.4.1989 and this position is applicable
equally to reassessments proposed on the basis of Orders passed under the
E Act or under any other law.

21. As a result of the discussion aforesaid, the appeal is allowed. The
Judgment of the High Court of Delhi dated 24.5.1996 is hereby set aside. As
prayed in the petition, the impugned riotices issued by the respondent of the
Income Tax Department under Sections 148 and 142 of the Act against the
F appellant for the assessment years 1968-69 to 1971-72 and 1981-82 are hereby
quashed. The appeal stands allowed with costs.

T.N.A. Appeal allowed.