Law:

Section:

Section 184 of the Income-tax Act, 1961 [Corresponding to section 23(5) of the IndianIncome-tax Act, 1922] - Firm - Assessed as such - Assessment year 1938-39 - Whether section 23(5) of 1922 Act which was introduced by Indian Income-tax (Amendment) Act, 1939 and came into force on 1-4-1939 was purely procedural and merely affected machinery for collecting tax rather than tax itself and, therefore, it should be given retrospective effect - Held, yes - Whether, therefore, Tribunal was justified in holding that provisions of section 23(5) of 1922 Act would be applicable to relevant assessment year if assessment was made after 1-4-1939 - Held, yes FACTS The assessment for the assessment year 1938-39 made on 31-3-1943 was on the total income of the firm, whereas the assessees claimed that the income of the firm should not be assessed but rather the share of profits of each partner in the partner's hands. The assessees relied upon section 23(5) of the 1922 Act which was inserted by the Indian Income-tax (Amendment) Act of 1939, and came into force on 1-4-1939. The ITO and the AAC held that the provisions of the Act of 1939 could have no application to the assessment for the year 1938-39. The Tribunal came to the conclusion that even for the year 1938-39, the provisions of the Amendment Act of 1939 would be applicable if the assessment was made after 1-4-1939. On reference, it was contended by the revenue that retrospective effect could not be given to the Amendment Act of 1939 as it would seriously affect the rights of Government. On the other hand, the assessees contended that the new section 23(5) introduced by the Amendment Act of 1939 was nothing more than a procedural section and did not affect at all the Government's right to revenue. HELD A statute will not affect rights which had accrued before a statute came into force unless there are express words in the statute affecting such rights or where a retrospective effect to the statute is inevitable by necessary intendment or implication. Section 23(5) of the 1922 Act simply introduced a new method of arriving at the net amount of tax on the partnership profits. Before 1939 the method was rather cumbrous. The…

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