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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.