IN HIGH COURT OF JUDICATURE AT PATNA TAX CASES No.126 of 1982 Sri Loknath Goenka, son of Sri Panna Lal Goenka, resident of Samastipur, in District Samastipur in State of Bihar Petitioner Versus Commissioner of Income Tax, Patna Respondent with TAX CASES No. 28 of 1986 Smt. Narmada Devi, wife of Sri Om Prakash Agarwal, resident of Ashok Raj Path, Patna Petitioner Versus Commissioner of Income Tax, Bihar, Patna Respondent Appearance : (In TAX CASES No. 126 of 1982) For Petitioner/s : Mr. D.V.Pathy, Advocate For Respondent/s : Mr.Rishi Raj Sinha, Sr. SC IT Ms. Shilpi Keshri, Jr. SC IT (In TAX CASES No. 28 of 1986) For Petitioner/s : Mr. D.V.Pathy, Amicus Curriae For Respondent/s : Mr.Rishi Raj Sinha, Sr. SC IT Ms. Shilpi Keshri, Jr. SC IT CORAM: HONOURABLE MR. JUSTICE JYOTI SARAN and HONOURABLE MR. JUSTICE MADHURESH PRASAD and HONOURABLE MR. JUSTICE MOHIT KUMAR SHAH C.A.V. JUDGMENT (Per: HONOURABLE MR. JUSTICE MADHURESH PRASAD) Date : 01-08-2019 These two cases arise from reference made by Income Tax Tribunal, Patna Bench, Patna under Section 256(i) of Income Tax Act, 1961 (hereinafter referred as as Act ). Patna High Court TAX No.126 of 1982 dt.01-08-2019 2/13 2. point for consideration in reference is whether Appellate Tribunal was correct in law in holding that share income of minor sons of assessees, including share in interest on capital credited to minor sons out of partnership firm was to be computed in hands of their father under Section 64(1)(iii) in Assessment year 1976-77. said provision was introduced in Income Tax Act by Taxation Law (Amendment) Act 1975 with effect from 1.4.1976, whereas accounting year of assessee(s) in instant case(s) came to end on 10.8.1975 and on 31.12.1975 in Taxation Case No. 126 of 1983 and Taxation Case No. 28 of 1986 respectively. 3. authorities were of opinion that question was answered by Division Bench decision rendered in case of Badri Prasad & ors. vs. Commissioner of Income Tax (1990) Volume 185 ITR 307, which concluded issue in following terms:- It is cardinal principle of tax laws that law to be applied is that which is in force at commencement of assessment year. (See Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 (SC) and Maneklal Vallabhdas Parikh and Sons v. CIT [1969] 72 ITR 637 (Guj). In instant case, assessment year is 1976- 77. Therefore, law in force on April 1, 1976, would govern assessment for assessment year in question. Patna High Court TAX No.126 of 1982 dt.01-08-2019 3/13 Tribunal, in our opinion, was right in holding that share income of minor sons from firm to which they were admitted as partners was assessable in hands of their fathers by virtue of provisions of Section 64(1)(iii) of Act as amended from April 1, 1976 by Taxation Law (Amendment) Act, 1975 Our answer to question referred to this Court is, therefore, in affirmative and against assessees. 4. It is when issue arose for consideration in these two cases before Division Bench that decision of Apex Court in case of Kesoram Industries and Cotton Mills Ltd, vs. Wealth Tax Commissioner (Central), Calcutta, reported in AIR 1966 SC 1370 was relied upon by Counsel for assessee to contend that liability to pay income tax hinges on accrual of income and has no concern with time when computation is made by taxing authority. It was submission of learned Counsel that decision in case of Kesoram Industries (supra) was not considered by Division Bench which decided case of Badri Prasad (supra). 5. It is bearing note of such circumstances Division Bench, which was considering Tax Case No. 28 of 1986, referred issue for consideration to larger Bench by order dated 8.5.1996. Patna High Court TAX No.126 of 1982 dt.01-08-2019 4/13 6. It is under Section 256(i) of Income Tax Act, Income Tax Tribunal Patna Bench had earlier in year 1982, referred same question for opinion of this Court, which remained pending consideration in proceedings arising out of Tax Case No. 126 of 1982 and it is bearing note of earlier order in Tax Case No. 28 of 1986 that Division Bench which was considering Tax Case No. 126 of 1982, also referred same question to larger Bench. 7. Accordingly both matters are before us for answering reference. 8. entire issue arises on scope and applicability of Section 64(1)(iii) of Act. This Court would therefore consider it useful to quote relevant provisions which reads as under :- 64. Income of individual to include income of spouse, minor child, etc. (1) In computing total income of any individual, there shall be included all such income as arises directly or indirectly. .. .. (iii) to minor child of such individual from admission of minor to benefits of partnership in firm . 9. admitted facts are that in both instant cases, accounting year of firm had closed much prior to coming Patna High Court TAX No.126 of 1982 dt.01-08-2019 5/13 into force of Section 64(1)(iii). In spite of accounting year having closed prior to coming into force of Section 64(1)(iii) with effect from 1.4.1976, Income Tax Tribunal added share income of minor sons from partnership firm at hands of income of assessee father under Section 64(1)(iii) of Act. 10. Mr. D. V. Pathy has assisted Court on behalf of assessee in Tax Case No. 126 of 1982. In spite of valid service of notice upon assessee in Tax Case No. 28 of 1986 none appeared on behalf of assessee. In circumstances, this Court has requested Mr. Pathy to appear as Amicus Curiae in Tax Case No. 28 of 1986 also. We have also heard Mr. Rishi Raj Sinha, learned Senior Standing Counsel on behalf of department. 11. issues in both cases are one and same. 12. Mr. Pathy appearing on behalf of assessee in both matters has submitted that provisions of Amending Act have come into force with effect from date specified in notification issued under Section 2 of Amendment Act i.e. with effect from 1.4.1976. It is his submission that even if share income of minor accrued prior thereto, same was liable to be added in income of parent, for purpose of computing Patna High Court TAX No.126 of 1982 dt.01-08-2019 6/13 taxable income of father in compliance with provisions contained in Section 64(i)(iii) of Amendment Act. 13. Learned Counsel have placed reliance on judgment rendered in case of Badri Prasad (supra), relevant extract of which has been extracted hereinabove at paragraph 3. It is their submission that in view of consideration and opinion expressed by Division Bench in case of Badri Prasad (supra), issue now stands settled. It is canvassed that irrespective of fact that Taxation Law Amendment Act has come into force with effect from 1.4.1976 and irrespective of fact that accounting year of both assessees had closed prior thereto, income of minor children of assesses was liable to be added at hands of their father while computing his total income. 14. As per submissions of Mr. Pathy, law applicable on date of assessment is relevant for ascertaining tax liability. He submits that time of accrual of income is irrelevant for purpose of applicability of Amending Act. Irrespective of fact that income has accrued and accounting year of assessee has come to end prior to 1.4.1976, Amending Act which came into force with effect from 1.4.1976 will apply to arrive at taxable income of assessee in accounting year Patna High Court TAX No.126 of 1982 dt.01-08-2019 7/13 1976-77 corresponding to accounting year 1975-76. According to him, para 8 of Constitution Bench judgment of Apex Court in Karimtharuvi Tea Estate Ltd Versus State of Kerala, reported in AIR 1966 SC 1385 which has been relied upon in case of Badri Prasad (supra) supports his contention. Para 8 of judgment in case of Karimtharuvi Tea Estate Ltd (supra) reads as follows:- Now, it is well settled that Income Tax Act, as it stands amended on first day of April of any financial year must apply to assessment of that year. Any amendments in Act which come into force after first day of April of financial year, would not apply to assessment for that year, even if assessment is actually made after amendments came into force. 15. In opinion of this court, legal position settled by Constitution Bench, is neither as appreciated by Division Bench in case of Badri Prasad (supra) nor as canvassed by Mr. Pathy. In fact what Constitution Bench has settled is that if amendment takes place on lst of April of any financial year, it would apply to assessment held for that financial year but not if amendment comes into force after start of financial year on lst of April in which case it would take effect on next assessment year. By applying said law to facts of two cases under reference, it is seen that Patna High Court TAX No.126 of 1982 dt.01-08-2019 8/13 provisions of Amending Act came into force on first day of April of financial year 1976-77. As per legal position settled in para 8 of judgment in case of Karimtharuvi Tea Estate Ltd. (supra), amendment would apply to assessment to be held for financial year 1976-77 i.e. assessment year 1977-78. This is irresistible conclusion reached by applying law laid down by Apex Court in para 8 of Constitution Bench judgment in case of Karimtharuvi Tea Estate Ltd (supra). 16. earlier judgment of Apex Court in case of Kesoram Industries (supra) decided on 24.11.1965 is in line with Constitution Bench judgment of Supreme Court in Karimtharuvi Tea Estate Ltd (supra) decided on 15.12.1965. relevant extract of judgment of Apex Court in Kesoram Industries (supra) is as follows:- 26. Uninfluenced by judicial decisions let us at out-set look at relevant provisions of two Acts. Under Section 3 of Income Tax Act, where any Central Act enacts that income tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to provisions of, said Act. expression charged is used both in case of Central Act i.e. Finance Act, and Income Tax Act. It could not have been intention of Patna High Court TAX No.126 of 1982 dt.01-08-2019 9/13 Legislature to charge income to income tax under two Acts. Necessarily, therefore, they are used in two different senses. tax is to be charged for that year in accordance with, and subject to, provisions of Income Tax Act; but said charge will be in accordance with rates prescribed under Finance Act. This construction will harmonize apparent conflict between two Acts. When you look at Section 2 of Finance Act, it shows that income tax shall be charged at rates specified in Part I of First Schedule, and super tax, for purpose of Section 55 of Income Tax Act, 1922, shall be charged at rates specified in Part II of First Schedule. primary object of Finance Act is only to prescribe rates so that tax can be charged under Income Tax Act. Income Tax Act is permanent Act whereas Finance Act is passed every year and its main purpose is to fix rates to be charged under Income Tax Act for that year. That should be construction is also made clear by Section 55 of Income Tax Act, whereunder super tax shall be charged for any year in respect of total income of previous year of any individual, Hindu undivided family, company etc. at rate or rates laid down for that year by Central Act. This section brings out distinction between tax charged and rate at which it is charged. This construction is also emphasized by Section 67-B of Income Tax Act, whereunder if on 1st day of April in any year provision has not yet been made by Central Act for charging of income tax for that year, Income Tax Act shall nevertheless have effect until such provision is so made as if provision in force in preceding year or Patna High Court TAX No.126 of 1982 dt.01-08-2019 10/13 provision proposed in Bill then before Parliament, whichever is more favourable to assessee, was actually in force. This shows that charging section is only Section 3 of Income Tax Act; and that Section 2 of Finance Act only gives rate for quantifying tax; for, this section gives alternative for quantification in contingency of Finance Act not having been made on 1st day of April of that year. Even if such Act was made, charge under Income Tax Act could be imposed and worked out only in terms of provisions of Income Tax Act. If that be construction, conclusion will flow that tax liability at latest will arise on last day of accounting year. 33. To summarize: debt is present obligation to pay ascertainable sum of money, whether amount is payable in praesenti or in futuro: debitum in praesenti, solvendum in futuro. But sum payable upon contingency does not become debt until said contingency has happened. liability to pay income tax is present liability though it becomes payable after it is quantified in accordance with ascertainable data. There is perfected debt at any rate on last day of accounting year and not contingent liability. rate is always easily ascertainable. If Finance Act is passed, it is rate fixed by that Act; if Finance Act has not yet been passed, it is rate proposed in Finance Bill pending before Parliament or rate in force in preceding year, whichever is more favourable to assessee. All ingredients of debt are present. It is present liability of ascertainable amount. Patna High Court TAX No.126 of 1982 dt.01-08-2019 11/13 36. For reasons we have stated earlier, we agree with conclusion arrived at by Gujarat High Court. We, therefore, hold that liability to pay income tax is debt within meaning of Section 2(m) of Wealth Tax Act and it arises on valuation date during accounting year. 17. Reading judgment of Apex Court in case of Kesoram Industries and Cotton Mills Ltd. harmoniously with Constitution Bench judgment of Apex Court in case of Karimtharuvi Tea Estate Ltd (supra), this Court would observe that argument advanced by Counsel for assessees (Amicus Curriae) as well as Department can be made only in respect of rate prescribed under Finance Act or Act providing surcharge if same is brought into force on lst of April of assessment year in which assessment for previous year is being done as same would only provide for ascertaining rate, for existing liability under Income Tax Act. But that is not case here. Under new provision, i.e. Section 64(1)(iii) new liability has been prescribed and not rate for ascertaining liability. Such new liability under Income Tax Act cnnot be given retrospective effect. Such liability can only be fastened on individual if same was existing at time of accrual and not at time of assessment. observations of Apex Court Patna High Court TAX No.126 of 1982 dt.01-08-2019 12/13 in paragraph 33 of judgment in case of Keshoram Industries and Cotton Mills (supra), clarifies this position. 18. In view of judgments of Apex Court in case of Keshoram Industries (supra) as well as Karimtharuvi Tea Estate Ltd (supra) this Court would have no hesitation in holding that for deciding liability of particular provision of Income Tax Act, date of accrual of income would be relevant. If provision comes into force in particular financial year, it would apply to assessment for that year but cannot be made applicable in respect of assessment for previous year. 19. Amending Act introduced new Section 64(1) (iii) in Income Tax Act with effect from 1.4.1976. tax liability under said provision could therefore be charged on assessee, in assessment which was to be made for that accounting year i.e. 1976-77, which would be done in assessment year 1977-78. Amending Act introducing new tax liability which came into force with effect from 1.4.1976 could not be given retrospectivity and be made applicable to previous accounting year i.e. 1975-76 corresponding to assessment year i.e. 1976-77. Patna High Court TAX No.126 of 1982 dt.01-08-2019 13/13 20. In view of foregoing discussions and conclusions arrived at by us, I am of considered opinion that judgment rendered in case of Badri Prasad (supra) does not lay down correct law. 21. issue of law having been clarified as aforesaid reference stands answered. matter is remanded to Division Bench for disposing of matter in terms of law as considered by Full Bench in instant proceeding. (Madhuresh Prasad, J.) Jyoti Saran, J. I, agree. (Jyoti Saran,J.) Mohit Kumar Shah, J. I, agree ( Mohit Kumar Shah, J.) SNkumar/- AFR/NAFR AFR CAV DATE 14.03.2019 Uploading Date 06.08.2019 Transmission Date N/A Loknath Goenka v. Commissioner of Income-tax, Patna