Full Judgment Text
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PETITIONER:
R. S. A. C. KASI IYER
Vs.
RESPONDENT:
THE COMMISSIONER OF INCOME-TAX, MYSORE, TRAVANCORE-COCHIN
DATE OF JUDGMENT:
01/09/1960
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
DAS, S.K.
HIDAYATULLAH, M.
GUPTA, K.C. DAS
AYYANGAR, N. RAJAGOPALA
CITATION:
1961 AIR 210 1961 SCR (1) 466
ACT:
Income-tax-Merger of Travancore-Cochin State with Indian
Union-Government of India’s power to direct assessment or
reassessment proceedings Travancore Income-tax Regulation
VIII of 1096 M. E.-Travancore Taxation on income
(Investigation Commission) Act, 1124 M. E. s. 8, sub-ss.
(2), (4),(5), (6)-Opium and Revenue Laws (Extension of
Application) Act (33 of 1950), SS. 2, 3, 3(c).
HEADNOTE:
The State of Travancore-Cochin merged with Indian Union on
March 7, 1949, but the Travancore Income-tax Regulation,
VIII of 1096 (Malayalam Era) and the Travancore Taxation on
Income (Investigation Commission) Act, II24 (Malayalam Era),
continued to apply to that area not withstanding the merger.
On August 6, 1949, the Travancore-Cochin Government passed
an order referring the case of the appellants to the com-
mission constituted under the ’Travancore Taxation on Income
(Investigation Commission) Act, 1124- M. E. The
investigation commission held by its report that the
appellants had made a secret profit in the accounting year
1118 M. E., which was not included in the income-tax return
submitted by the appellants earlier. The Travancore-Cochin
Government accepted the report and directed recovery of the
tax due by its order dated February 14, 1950. The Income-
tax Officer without holding any fresh assessment
proceedings, issued a demand notice.
The Union Legislature enacted the Opium and Revenue Laws
(Extension of Application) Act (33 of 1950) providing for
extension of certain opium and revenue laws to certain parts
of India. In exercise of the authority under s. 8(2) of the
said Travancore Investigation Act, read with S. 3, cl. (c),
of the Opium and Revenue Laws (Extension of Application)
Act, the Government of India, on October 25, 1951, directed
that appropriate assessment proceedings under the Travancore
Income-tax Act be taken against the appellants with a view
to assess or reassess the concealed income which bad escaped
assessment. The Commissioner of Income-tax withdrew the
earlier notice of demand and thereafter the Income-tax
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Officer after reassessment proceedings directed the
appellants to pay income-tax and super-tax on the concealed
income.
The said orders of the Government of India and of the
467
Income-tax Officer were questioned by the appellants and the
matter was referred by the Commissioner of Income-tax to the
High Court. The High Court held that the orders in question
were valid orders. The appellant appealed with special
leave.
Held, that the Government of India had the powers under s.
3(c) of the Opium and Revenue Laws (Extension of
Application) Act, 1950, to direct proceedings for assessment
or reassessment under the Travancore Income-tax Regulation
after consideration of the report made by the Travancore
Investigation Commission.
The order passed by the Government of India on February 14,
1950, was not inconsistent with the order passed by the
Travancore-Cochin Government. Liability to pay income-tax
would arise only on an effective order of assessment. No
such order having been passed by the Income-tax Officer in
the instant case, there could be no doubt as to the
competency of the Government of India to direct proceedings
for assessment. There is nothing in s. 8(2) of the
Travancore Taxation on Income (Investigation Commission) Act
which states that action may be taken thereunder only once,
and if an unauthorised direction is given thereunder there
is nothing which prevents rectification of that order.
By sub-s. (4)’of s. 8 of the Travancore Taxation on Income
(Investigation Commission) Act the findings by the
Investigation Commission are final in all assessment or
reassessment proceedings. Section 8(2) of the Act removed
the bar of limitation which arose by s. 25 of the Income-tax
Act. Consequently, it was competent to the Income-tax
Officer to reopen the assessment proceedings notwithstanding
any lapse of time and the previous order of assessment did
not operate as a bar to such re. assessment.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 304/56.
Appeal by special leave from the judgment and order dated
July 19, 1954, of the former Travancore. Cochin High Court
in Income-tax Reference No. 5 of 1952.
A. V. Viswanatha Sastri, R. Ganapathy Iyer and G. Gopalakrishnan,
for the appellant.
K. N. Rajagopal Sastri and D. Gupta, for the respondent.
1960. September 1. The Judgment of the Court was delivered
by
SHAH J.-The Commissioner of Income Tax for Mysore,
Travancore Cochin and Coorg at Bangalore 60
468
referred under s. 8(5) of the Travancore Taxation on Income
(Investigation Commission) Act, 1124 (Malayalam Era)-
hereinafter referred to as the Investigation Act read with
s. 113 of the Travancore Income Tax Regulation, 1096
(Malayalam Era)-hereinafter referred to as the Income Tax
Act, the following questions to the High Court of
Travancore-Cochin:
(1) Whether on the facts and in the circumstances of the
case, there was any evidence before the commission to come
to the conclusion to which it came in its report ?
(2) On the facts and in the circumstances of the case was
the order C. No. 76 (1) I.T/51 dated 25-10-1951 of the
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Government of India passed under the provisions of s. 8(2)
of the Travancore Taxation on Income (Investigation
Commission) Act read with s. 3 of the Opium and Revenue Laws
(Extension of Application) Act of 1950, a legal and valid
order ?
(3) Whether on the facts and in the circumstances of the
case, the order passed by the Income Tax Officer in
pursuance of the directions of the Government under s. 8(2)
of the Travancore Taxation on Income (Investigation
Commission) Act, 1124, was a legal and
valid order?
The High Court answered the three questions in the
affirmative. Against the order of the High Court answering
the reference, this appeal has been preferred with special
leave.
The facts which gave rise to the reference are briefly
these. The appellants are a firm of merchants carrying on
business in yarn in the Districts of Trivandrum, and
Nagercoil in the Travancore-Cochin State. For the
accounting year 1118 M. E. (August 17, 1942 to August 16,
1943), the appellants submitted a return under the Income
Tax Act showing a net return of Rs.4,78,5945-0 as assessable
income, and they were assessed to income-tax and super tax
by the Income Tax Officer on that return. In 1124 M. E.,
the Legislature of Travancore enacted the Investigation Act
conferring authority upon the Government of Travancore to
constitute a commission to be called an Income Tax
Investigation Commission to investigate and, report on all
matters
469
relating to taxation on income, with particular reference to
the extent to which the existing law relating to, and
procedure for, the assessment and collection of such
taxation was inadequate to prevent evasion thereof and to
investigate in accordance with the pro-visions of the Act in
cases referred, on or before February 16, 1950, to it under
s. 5. The Government was authorised after consideration of
the report to direct that proceedings be taken under the
various Acts including the Income Tax Act, in respect of any
period commencing after August 16, 1939. By sub-s. (4) of
s. 8, all assessment or reassessment proceedings taken in
pursuance of the direction under sub-s. (2), the findings
recorded by the Commission on the case or on the points
referred to it were, subject to the provisions of sub-ss.
(5) and (6) to be final. Sub-section (5) of s. 8 provided
for a reference to the High Court on any question of law
arising out of any order made by the Commission.
The State of Travancore-Cochin merged with the Indian Union
on March 7, 1949, but the Income Tax Act and the
Investigation Act continued to apply to that area
notwithstanding the merger. On August 6, 1949, the
Government of Travancore-Cochin passed an order referring
the case of the appellants to the Commission for
investigation and report under s. 5 of the Investigation
Act. On the evidence led before it, the Commission held by
its report dated February 1, 1950, that the appellants had
in the accounting year 1118 M. E. made a secret profit of
Rs. 1,31,750 which was not included in the earlier
assessment. The Commission then proceeded to compute the
tax payable by the appellants and found that the amount of
tax payable by the appellants on their true income was Rs.
1,35,736-8-0 and that they were liable to pay that amount
subject to credit for the tax, already paid, The Government
of Travancore-Cochin by order dated February 14, 1950,
accepted the report of the Commission and directed that
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immediate steps be taken to recover, under the Income Tax
Act, from the appellants the tax due according to the
findings recorded by the Commission. Pursuant to this
direction, the
470
Income Tax Officer, without holding any fresh assessment
proceedings, issued on March 15,1950, a demand notice under
s. 42 of the Income Tax Act for the additional tax imposed
on the appellants according to the findings of the
Commission and called upon the appellants to pay Rs. 13,337-
13-0 as additional tax. The Union Legislature enacted on
April 17, 1950, the Opium and Revenue Laws (Extension of
Application) Act providing for the extension of certain
opium and revenue laws to certain parts of India. By s. 2
of that Act, amongst others, the Taxation on Income
(Investigation Commission) Act, XXX of 1947 (enacted by the
Central Legislature) and all rules and orders made
thereunder which were in force immediately before the
commencement of Act XXX of 1950, were extended to the rest
of India except the State of Jammu and Kashmir, but by s. 3,
in so far as it is material, it was provided that,
" If immediately before the commencement of this Act there
is in force in any part B State other than Jammu and Kashmir
any law (x x x x) corresponding to the Taxation on Income
(Investigation Commission) Act, 1947 (XXX of 1947); that law
shall continue to remain in force. with the following
modifications,
(a) all cases referred to or pending before the State
Commission (by whatever name called) in respect of matters
relating to taxation on income other than agricultural
income, shall stand transferred to the Central Commission
for disposal:
Provided ...................................
(b) .....................................
(bb).........................................
(c) Any reference in the State law, by whatever form of
words, to the State Government or the State Commission
shall, in relation to income other than agricultural income,
be construed as a reference to the Central Government or the
Central Commission, as the case may be;".
Purporting to exercise authority under s. 8(2) of the
Investigation Act read with s. 3, cl. (c), of the Opium and
Revenue Laws (Extension of Application) Act,
471
1950, the Government of India, on October 25, 1951, directed
that appropriate assessment proceedings under the Income Tax
Act be taken against the appellants with a view to assess or
reasses the concealed income of Rs. 1,31,750 which had
escaped assessment On January 1, 1952, the Commissioner of
Income Tax withdrew the notice of demand dated March 15,
1950, and thereafter the Income Tax Officer commenced
reassessment proceedings against the appellants and by his
order dated March 29, 1952, directed the appellants to pay
income-tax and super tax on the concealed income.
At the instance of the appellants, a reference was made to
the High Court of Travancore-Cochin under s. 8(5) of the
Investigation Act and the three questions set out
hereinbefore were referred to that court. ID the view of
the High Court, there was evidence on which the Commission
could arrive at the conclusion recorded by it. Evidently,
the High Court was incompetent, in answering the question,
to enter upon a review of the evidence in exercise of its
advisory jurisdiction; and Mr. Viswanatha Sastri on behalf
of the appellants has fairly not attempted to challenge the
answer recorded by the High Court on the first question.
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The Government of India had, on a consideration of the
report of the Commission, directed on October 25, 1951, that
assessment proceedings be started against the appellants.
Section 8(2) of the Investigation Act, in so far as it is
material, reads as follows:
" After considering the report, our Government shall by
order in writing direct that such proceedings as they think
fit under the Travancore Income Tax Act, VIII of 1096......
shall be taken against the person to whose case the report
relates in respect of the income of any period commencing-
after the last day of Karkadagom, 1124 (August 16, 1939) and
upon such a direction being given, such proceedings may be taken and
completed under the appropriate law not-
withstanding the restrictions contained in s. 25 of the
Travancore Income Tax Act, VIII of 1960...... and
notwithstanding any lapse of time or any decision to
472
a different effect given in the case by any Income Tax
authority or Income Tax Appellate Tribunal ".
By s. 3 of the Opium and Revenue Laws (Extension of
Application) Act, XXXIII of 1950, the Investigation Act
continued to remain in force with the modification that
reference in the State law to the State Government was in
relation to income other than agricultural income, to be
construed as a reference to the Central Government.
Whatever authority could be exercised by the Travancore-
Cochin Government before the enactment of the Opium and
Revenue Laws (Extension of Application) Act, 1950, could
therefore, since the application of that Act, be exercised
by the Central Government, and the latter Government could
direct in respect of a case that proceedings for reassess-
ment be commenced against a tax payer. The case of the
appellants was referred to the Investigation Commission by
the Travancore-Cochin Government and report was made to that
Government by the Commission, and the authority of the
Government of Travancore-Cochin to take action on the report
having been conferred upon the Central Government by s. 3(c)
of the Opium and Revenue Laws (Extension of Application)
Act, the Central Government was primal facie competent to
direct that proceedings under the Income Tax Act as may be
justifiable be taken against the appellants. But Mr.
Viswanatha Sastri appearing on behalf of the appellants
contests that view on two grounds:
(1) that the Central Government may direct proceedings to
be taken under the Income Tax Act only if the report was
made by a commission appointed under the Taxation on Income
(Investigation Commission) Act,, XXX of 1947, and not on a
report made by a commission appointed by the Travancore-
Cochin State under the Investigation Act, and
(2) that the Travancore-Cochin Government having once taken
action directing recovery of the tax due, it was not
competent to the Central Government under s. 8(2) of the
Investigation Act again to take any action on the report.
473
In our view, there is no force in either of these con-
tentions. The expression " the report " in s. 8(2) refers
to the report made under s. 8(1) by the members of the
Commission appointed by the Travancore-Cochin Government
under the Investigation Act and on a consideration of that
report, the Government of India has, since the enactment of
the Opium and Revenue Laws (Extension of Application) Act,
1950, power to direct that proceedings for assessment or re-
assessment be taken under the Income Tax Act. On the plain
language used by the Legislature in s. 3(c) of the Opium and
Revenue Laws (Extension of Application) Act, 1950, the
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contention raised on behalf of the appellants is
unsustainable.
By order dated February 14, 1950, the Government of
Travancore-Cochin had accepted the report of the Commission
and had directed the Board of Revenue to take necessary
action for recovery of the amount of tax due from the
appellants, and pursuant to that direction, without holding
proceedings for assessment or reassessment, a demand notice
was issued by the Income Tax Officer. The order passed by
the Government of India on October 25, 1951, is not in any
way inconsistent with the order dated February 14, 1950.
Both the orders direct that steps be taken for recovery of
the amount of income tax due from the appellants But, if as
appears evident from s. 8(4) of the Investigation Act,
liability to pay income-tax could arise only on an effective
order of assessment, the Income Tax Officer not having
assessed the income before the demand notice was issued, the
Government of India, was, in our judgment, competent to
direct that proceedings be taken for assessing the liability
of the appellants to pay tax consistently with the
provisions of the Income Tax Act. The order passed by the
Government of India on October 25, 1951, may there. fore be
regarded as effectuating the earlier order passed by the
Travancore-Cochin Government on February 14, 1950. In any
event, there IN nothing in s. 8(2) which justifies the
contention that action may be taken thereunder only once.
If an unauthorised
474
direction is given under s. 8(2), there is nothing in that
provision which prevents rectification of that order.
By sub-s. (4) of s. 8 of the Investigation Act, the findings
recorded by the Commission in cases or points referred to
them are made final in all assessment or reassessment
proceedings. The Act has, by sub-s. (2) of s. 8 removed
the bar of limitation which arose by s. 25 of the Income Tax
Act. It was competent therefore to the Income Tax Officer
to reopen the assessment proceedings notwithstanding any
lapse of time and the previous order of assessment did not
operate as a bar to such reassessment. The High Court was
therefore in our judgment right in recording its answers on
the three questions submitted by the Commissioner of Income
Tax. In that view, the appeal fails and is dismissed with
costs.
Appeal dismissed.