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PETITIONER: A.  N. LAKSHMANA SHENOY

       Vs.

RESPONDENT: THE INCOME TAX OFFICER, ERNAKULAM &ANOTHER(and connected app

DATE OF JUDGMENT: 28/04/1958

BENCH: DAS, S.K. BENCH: DAS, S.K. BOSE, VIVIAN DAS, SUDHI RANJAN (CJ) AIYYAR, T.L. VENKATARAMA SARKAR, A.K.

CITATION:  1958 AIR  795            1959 SCR  751

ACT:        Income   Tax-Re-assessment-Original  assessment  under   the        Provisions of Travancore, Cochin and Mysore income-tax Acts-        Constitutional  changes resulting in Travancore and  Cochin,        and  Mysore  becoming  Part  B  States-Extension  of  Indian        income-tax  Act  to  those  States--  Applicability  of  the        Travancore,  Cochin  and  Mysore  Income-tax  Acts  for  re-        assesment  for Prior Period-Financial agreement between  the        President of India and the Rajpramukh-        96        752        Effect  on re-assessment  Proceedings-Travancore  Income-tax        Act,  1121 (Travancore XXIII Of 1121), s. 47-Cochin  Income-        tax Act, 1117  (Cochin VI Of 1117), s. 44 -Mysore Income-tax        Act,  1923 (Mysore V Of 1923), s. 34-Finance Act, 1950  (XXV        Of 1950), s. 13(1)Constitution of India, Arts. 278 and 295.

HEADNOTE: Section  13(1)  of  the  Finance  Act,  1950,  provided   If immediately  before the 1st day of April, 1950, there is  in force  in any Part B State...... any law relating to  income tax  or  supertax or tax on profits of  business,  that  law shall  cease to have effect except for the purposes  of  the levy, assessment and collection of income-tax and  super-tax in  respect of any period not included in the previous  year for  the purposes of assessment under the Indian  Income-tax Act,  1922  for the year ending on the 31st  day  of  March, 1951,  or for any subsequent year, or, as the case  may  be, the levy, assessment and collection of the tax on profits of business  for any chargeable accounting period ending on  or before the 31st day of March, 1949." The  appellant, a merchant carrying on his business  in  the erstwhile  States of Travancore and Cochin, was assessed  to income-tax  for the two accounting years 1122 M.  E.  (1946- 1947)  and 1123 M.  E. (1947-1948) under the income-tax  law in  force  there, namely, the Travancore Income-tax  Act  of 1121  M.   E. and the Cochin Income-tax Act of  1117  M.  E. Between  1947  and 1950 there  were  constitutional  changes resulting in the integration of the two States, formation of

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the United State of Travancore and Cochin, accession of  the latter to the Dominion of India, and finally, its acceptance of  the  Constitution of India whereby it became  a  Part  B State  within  the Constitution of India.  The  question  of financial  integration was considered by the  Indian  States Finances   Enquiry  Committee  and  on  the  basis  of   the recommendations made by it a financial agreement was entered into  on February 25, 1950, between the President  of  India and  the Rajpramukh of the State of  Travancore-Cochin.   By Art.  277  of  the Constitution  taxes  leviable  under  the Travancore  Income-tax  Act  or the  Cochin  Income-tax  Act continued  to be so levied until provision to  the  contrary was  made by Parliament by law.  Such provision was made  by the Finance Act, 1950, which extended the Indian  Income-tax Act,  1922,  to the State of Travancore-Cochin,  but  by  s. 13(1) saved certain provisions of the Travancore and  Cochin Income-tax  Acts.   In  respect of the  assessment  for  the accounting  year  1124  M.  E.  the  Income-tax  Officer  of Ernakulam  rejected  the  appellant’s books  of  account  as unreliable and made a " best of judgment " assessment by his order  dated  January 11, 1952.  On February 12,  1952,  the Income-tax  Officer, Ernakulam, issued four notices  to  the appellant, two under s. 44 Of the Cochin Income-tax Act  and two  under  s. 47 of the Travancore Income-tax  Act  stating therein  that in consequence of definite  information  which had  come  into his possession, he had discovered  that  the income of the appellant 753 for the assessment years 1123 and II24 M. E had been  under- assessed and that he proposed to re-assess the said income ; and the appellant was asked to submit a return in respect of his  total world income for the two years in question.   The appellant  challenged  the jurisdiction  of  the  Income-tax Officer  to re-assess his income and contended (1) that  the assessment order dated January 11, 1952, made by the Income- tax  Officer  for the accounting year 1124 M. E.  being  the only  document  on which the Income-tax Officer  relied  for issuing a notice to the appellant, the requisite  conditions for  the  application  of  the  statutory  provisions   were lacking, (2) that s. 13(1) of the Finance Act, 1950, did not have  the effect of saving the provisions of the  Travancore Income-tax Act or the Cochin Income-tax Act for the  purpose of  re-assessment of income-tax, and (3) that the  financial agreement  made between the President of India and the  Raj- pramukh  dated February 25, 1950, which  received  constitu- tional  sanctity in Art. 278 of the  Constitution,  rendered the    initiation   of   such   re-assessment    proceedings unconstitutional and void : Held,  (1) that though the meaning of the phrase "  definite information " in S. 44 (1) Of the Cochin Income-tax Act  and S.  47(1) Of the Travancore Income-tax Act, must  depend  on the  circumstances  of  each case, there must  be  a  casual connection  between  the  information  and  the   discovery, referred to in the sections ; but discovery does not mean  a conclusion  of  certainty  at the stage of notice  ;  it  is enough if the Income-tax Officer forms an honest belief. Accordingly,  the assessment order dated January  11,  1952, which  disclosed  a  definite  and  systematic  pattern   of transactions for avoidance of tax not only in respect of the year covered by the order but spread over years anterior  to it,  amounted  to information which, if  honestly  believed, would  reasonably  support  the opinion  of  the  Income-tax Officer  that there was a discovery of " escaped  "  income, etc., within the meaning of the sections ; Firm jitanyam Niymalram v. Commissioner of Income-tax, A. 1.

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R. 1952 Pat. 163, approved. (2)that the expression " levy, assessment and collection  of income tax " in s. 13(1) Of the Finance Act, 1950, was  wide enough  to comprehend re-assessment proceedings under s.  47 of  the  Travancore Income-tax Act and S. 44 Of  the  Cochin Income-tax Act; Commissioner  of Income-tax, Bombay Presidency and  Aden  v. Khemchand Ramdas, (1938) L. R. 65 1. A. 236, explained. Firm  L. Hazari Mal v. Income-tax Officer, Ambala, A. 1.  R. 1957 Punjab 5, approved. (3)that on a true construction of the recommendations of the Indian States Finances Enquiry Committee, the financial 754 agreement between the President of India and the  Rajpramukh did not render the impugned proceedings unconstitutional  or void. In the connected appeals, the respondents who were merchants doing  business  in the State of Mysore,  were  assessed  to income-tax  under the Mysore Income-tax Act, 1923,  for  the years  prior to the integration of Mysore with  India.   But subsequent to the integration of Mysore notices under S.  34 Of  the Mysore Income-tax Act were issued against  them  for re-assessment  of  income-tax  for the years  prior  to  the integration.  The respondents contended that the  Income-tax Officer  had  no jurisdiction to issue such notices  on  the grounds  (1)  that under the Finance Act, 1950,  the  Mysore Income-tax  Act, 1923, stood repealed on and from  April  1, 1950,  and s. 13(1) of the former Act kept alive the  Mysore Act  for the purpose of levy, assessment and  collection  of income-tax, etc., for the period mentioned therein, but  did not save s. 34 Of the Mysore Income-tax Act for the  purpose of  re-assessment of income-tax and, therefore, the  notices issued under s. 34 were without jurisdiction and  authority, (2)  that the financial agreement between the  President  of India and the Rajpramukh of Mysore, dated February 28, 1950, rendered  the initiation of such  re-assessment  proceedings unconstitutional  and  void, and (3) that  the  jurisdiction under  s.  34 Of the Mysore Income-tax Act  was  limited  to ascertainment  of extra income not assessed and the  section did  not confer jurisdiction to make a new assessment  under the Act.- Held, (1) that the Finance Act, 1950, empowered the  Income- tax  Officer to take proceedings under s. 34 Of  the  Mysore Income-tax  Act, for re-assessment, for the prior years,  of the under estimated or escaped income; (2)that the financial agreement dated February 28, 1950, did not  render the proceedings for  re-assessment,  unconstitu- tional or void; and (3)that  though there was a distinction between an  original or  normal assessment under S. 23 and a re-assessment  under s.  34 of the Mysore Income-tax Act, the expression "  levy, assessment and collection of income-tax " in s. 13(1) of the Finance Act, 1950, had been used in a comprehensive sense so as  to  include the whole procedure for  imposing  liability upon the assessee.

JUDGMENT: CIVIL APPELLATE, JURISDICTION: Civil Appeals Nos. 143 to 145 of  1954, 27 to 30 and 161 to 164 of 1956. Appeals  from  the judgment and order  dated  September  14, 1953, of the former Travancore-Cochin High Court in Original Petitions  Nos.  53, 56 and 57 of 1952.   Appeals  from  the judgment  and order dated December 14, 1954, of  the  Mysore

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High Court in C. P. Nos. 755 52 and 53 and W. P. Nos. 105 and 106 of 1954.  Appeals  from the  judgment and order dated March 22, 1955, of the  Mysore High Court in Writ Petition No. 122 of 1954 and order  dated April 7, 1955, in W.P. Nos. 35, 36 and 37 of 1955. K.S.  Krishnaswami Iyengar, M. U. Isaac and Sardar  Bahadur, for the appellants in C. As.  Nos. 143-45 of 1954. H.   N. Sanyal, Addl.  Solicitor-General of India, B.  Gana- pathy  Iyer and R. H. Dhebar, for the appellants in  C.  As. Nos. 27-30 and 161-164 of 1956. R.   Ganapathy Iyer and R. H. Dhebar, for the respondent  in C. As.  Nos. 143-145 of 1954. A.   V.  Viswanatha  Sastri and G.  Gopalakishnan,  for  the respondents in C. As.  Nos. 27-30 of 1956. A. V. Viswanatha Sastri, K. R. Choudhury and G.   Gopalakri- shnan, for the respondents in C. As.  Nos. 161-164 of 1956. 1958.  April 28.  The Judgment of the Court was delivered by S.K.  DAS  J.-This judgment relates to  and  governs  eleven appeals which for convenience have been classified into  two groups.   The  first  group  may  be  called  the  group  of Travancore-Cochin appeals, and within this group fall  Civil Appeals  Nos. 143 to 145 of 1954.  The, second group may  be called the group of Mysore appeals and within this group are eight  appeals, namely, Civil Appeals Nos. 27 to 30 of  1956 and 161 to 164 of 1956.  By reason of the circumstance  that certain common questions of law and fact arise in all  these eleven  appeals, they have been heard one after  the  other; but  it  will be convenient and will avoid confusion  if  we state  the  facts relating to  the  Travancore-Cochin  group first  and then deal with the questions  arising  therefrom. We shall then state the additional facts of the Mysore group of  appeals, and answer the questions arising therefrom,  in so  far  only  as they have not  been  answered  already  in relation  to  the Travancore-Cochin group.  It may  be  here added 756 that in the Travancore-Cochin appeals (Civil Appeals 143  to 145 of 1954) the appellant is the assessee, A. N.  Lakshmana Shenoy, of Messrs.  New Guna Shenoy Company, Ernakulam,  and the two respondents are the Income-tax Officers of Ernakulam in Cochin and of Kottayam in Travancore.  In the other group of  appeals, namely, the Mysore appeals, the appellants  are the  Income-tax  Officers of certain income-tax  circles  in Bangalore  and  the respondents are assessees who  carry  on business within the jurisdictional area of the said  Income- tax  Officers.  In the Travancore Cochin appeals,  the  High Court  of Travancore-Cochin came to a decision  against  the assessee,  while  in the Mysore appeals the  High  Court  of Mysore came to an opposite conclusion on identical questions of  law;  that  is why in the first  group  of  appeals  the assessee  is  the  appellant and in  the  second  group  the appellants are the Income-tax Officers. Travancore-Cochin  appeals: We proceed now to deal with  the Travancore-Cochin  appeals.  The assessee, A.  N.  Lakshmana Shenoy, is a hardware merchant who carried on his trade  and business for several years in the then States of  Travancore and  Cochin, with his headquarters at Ernakulam  in  Cochin. He  was assessed to income-tax in both the States under  the income-tax law in force there, namely, the Cochin Income-tax Act  of  1117 M. E. (hereinafter referred to as  the  Cochin Act)  and  the  Travancore  Income-tax Act  of  1121  M.  E. (hereinafter referred to as the Travancore Act).  He was  so assessed  by  the  Incometax Officer at  Ernakulam  for  the Cochin State and the Income-tax Officer at Kottayam for  the

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Travancore State.  It is a matter of history that Cochin and Travancore  were formerly independent States, and  till  the lapse  of  paramountcy,  the Crown  as  represented  by  and operating  through  the political authorities  provided  the nexus   between   those  States  and  the   Central   Indian Government.  The Indian Independence Act, 1947, released the States  from their obligation to the Crown; but  in  August, 1947,  the Rulers of the two States acceded to the  Dominion of India.  This was followed by a process of 757 two-fold  integration-the consolidation of the  States  into sizeable administrative units and their democratisation.  On May  27, 1949, the Rulers entered into a covenant which  was concurred  in by the Government of India.  By that  covenant the Rulers agreed that as from the first day of July,  1949, the States of Travancore and Cochin should be united in  and form  one  State with a common  executive,  legislature  and judiciary by the name of the United State of Travancore  and Cochin.  The covenant further provided that " there shall be a  Rajpramukh  for  the  United  State  and  the  Ruler   of Travancore  shall  be the first  Rajpramukh;  the  executive authority  of  the United State shall be  exercised  by  the Rajpramukh and there shall be a council of ministers to  aid and advise him ". Article IX of the covenant said that " the Rajpramukh  shall  within a fortnight of the  appointed  day execute  on  behalf  of the United State  an  Instrument  of Accession  in accordance with the provisions of s. 6 of  the Government  of India Act, 1935, and in place of the  earlier Instruments  of Accession of the covenanting States; and  he shall by such Instrument, accept as matters with respect  to which the Dominion Legislature may make laws for the  United State  all the matters mentioned in List I and List  III  of the Seventh Schedule to the said Act, except the entries  in List I relating to any tax or duty ". There was a proviso to the Article which said that nothing in the Article shall  be deemed  to prevent the Rajpramukh from accepting any or  all of  the  entries in the said List I relating to any  tax  or duty   as  matters  with  respect  to  which  the   Dominion Legislature may make laws for the United State.  On July 14, 1949,  a  supplementary  Instrument  was  executed  by   the Rajpramukh  by  which he accepted, on behalf of  the  United State, all matters enumerated in List I and List III of  the Seventh  Schedule to the Government of India Act,  1935,  as matters  in respect of which the Dominion Legislature  might make  laws for the United State, subject, however,  to  "the proviso  that nothing contained in the said lists or in  any other provision of the Government of India Act, 1935,  shall be deemed to empower the 758 Dominion  Legislature  to  impose any tax  or  duty  in  the territories  of  the United State.  The result was  that  in spite  of the integration and accession of the United  State to the Dominion of India, the Cochin Act continued to be  in force  in  the territory formerly known as  Cochin  and  the Travancore  Act  in the territory known as  Travancore.   On November   24,  1949,  there  was  a  proclamation  by   the Rajpramukh  which stated that in the best interests  of  the United State of Travancore and Cochin it was desirable  that the  constitutional  relationship  established  between  the United  State  and the Dominion of India shall not  only  be continued,  but the relation as between that State  and  the contemplated Union of India shall be further strengthened  ; it was then stated that the Constitution of India as drafted by  the  Constituent Assembly of India which  included  duly appointed  representatives  of the United State  provided  a

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suitable  basis for strengthening the relation  between  the two States.  The proclamation then went on to say- ’’And whereas by virtue of the power vested in it under  the Covenant  establishing this State, the Legislative  Assembly of  the State has resolved that the Constitution  framed  by the Constituent Assembly of India be adopted by this State. I now hereby declare and direct- That the Constitution of India shortly to be adopted by  the Constituent Assembly of India shall be the Constitution  for the  United State of Travancore and Cochin as for the  other parts  of India and shall be enforced as such in  accordance with the tenor of its provisions. That  the provisions of the said Constitution shall as  from the  date  of its commencement, supersede and  abrogate  all other constitutional provisions inconsistent therewith which are at present in force in this State." The  Constitution  of India came into force on  January  26, 1950,  and on that date Travancore-Cochin became one of  the Part B States within the Constitution of India.  Under  that Constitution  the  subject of "taxes on  income  other  than agricultural income" was 759 included in the Union Legislative List and Parliament alone’ had  exclusive  power to; make laws in respect  thereof  All laws  in force in the territory of Travancore-Cochin  became subject  to  the  Constitution of lndia when  it  came  into force; but Art. 277 of the Constitution enaccted- " Any taxes, duties, cesses or fees which immediately before the  commencement of this Constitution, were being  lawfully levied by the Government of any State or by any municipality or  other  local authority or body for the purposes  of  the State  municipality,  district  or  other  local  area  may, notwithstanding that those taxes, duties, cesses or fees are mentioned in the Union List, continue to be levied and to be applied to the same purposes until provision to the contrary is made by Parliament by law. The  result of the aforesaid provision of  the  Constitution was  that  the taxes leviable under the Cochin  Act  or  the Travancore Act continued to be so levied until provision  to the contrary was made by Parliament by law.  Such  provision was made by the Finance Act, 1950 (XXV of 1950).  Section  3 of that Act extended the Indian Income-tax Act, 1922, to the whole  of India except the State of Jammu and Kashmir,  with effect from April 1, 1950.  The interpretation of s. 13  (1) of this Finance Act, 1950, is one of the questions argued in these  appeals,  and  the relevant provision  of  that  sub- section must be quoted in full- "If immediately before the 1st day of April, 1950, there, is in  force in any Part B State other than Jammu and  Kashmir, or in, Manipur, Tripura or Vindhya Pradesh or in the  merged territor  of  CoochBehar any law relating to  income-tax  or super-tax  or  tax on profits of business,  that  law  shall cease  to have effect except for the purposes of  the  levy, assessment  and  collection of income-tax and  super-tax  in respect of any period not included in the previous year  for the purposes of assessment under the Indian Income-tax  Act, 1922, for the year ending on the 31st day of March, 1951, or for any, subsequent year, or, as the case may be, the  levy, assessment and collection of 97 760 the tax on profits of business for any chargeable accounting period ending on or before the 31st day of March 1949. Provided  that any reference in any such law to an  officer, authority,  tribunal  or  court  shall  be  construed  as  a

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reference to the corresponding officer, authority,  tribunal or court appointed or constituted under the said Act, and if any  question arises as to who such  corresponding  officer, authority, tribunal or court is, the decision of the Central Government thereon shall be final: ". So  far  we have traced the constitutional  history  of  the integration  of  Travancore-Cochin,  its  accession  to  the Dominion  of  India  and  finally  its  acceptance  of   the Constitution  of  India  whereby it became a  Part  B  State within  the  Constitution of India.  We now go back  to  the story  of the assessments made on the assessee.  The  income of the assessee for the two accounting years, 1122 and  1123 M.E. (corresponding to the years ending on August 16,  1947, and  August 16, 1948, respectively) was assessed in the  two assessment years, 1123 and 1124 M.E. in accordance with  the Cochin  Act  by the Income-tax Officer at Ernakulam  by  his orders   dated  July  28,  1949,  and  January   31,   1950, respectively.   These  assessments,  the  assessee  alleged, became final and he paid the taxes accordingly.   Similarly, the income of the assessee in Travancore for the  accounting years  1122 and 1123 M.E. was assessed under the  Travancore Act for the assessment years 1123 and 1124 by the Income-tax Officer,  Kottayam, by his orders dated April 11, 1949,  and July 30, 1949, and these assessments also, according to  the assessee,  became final and he paid the  taxes  accordingly. The  income  of the assessee for the  accounting  year  1124 M.E.was  assessed under the Indian Incometax Act ’ 1922,  in the  assessment  year  1951-52 by  the  Income-tax  Officer, Ernakulam, by his order dated January 21, 1952.  The account books  of the assessee were rejected as unreliable  and  the Income-tax  Officer, Ernakulam, made a " best of judgment  " assessment.   This  assessment order is Ext.   VIII  in  the record.  The assessee appealed against it and, subsequently, on 761 December  14, 1953, that is, subsequent to the  decision  on the  three  writ  petitions  filed  in  the  High  Court  of Travancore-Cochin,  the  Appellate  Assistant  Commissioner, Trivandrum,  passed an order which has been produced  before us  with  an application for taking it on  the  record.   We accepted the application and both the assessment order, Ext. VIII  dated January 21, 1952, and the appellate order  dated December 14, 1953, will be duly considered by us. On  February  12, 1952, the Income-tax  Officer,  Ernakulam, issued four notices to the assessee, two under s. 44 of  the Cochin Act and two under s. 47 of the Travancore Act stating therein  that in consequence of definite  information  which had  come  into his possession, he had discovered  that  the income  of  the assessee assessable to  income-tax  for  the assessment years 1123 and 1124 M. E. had been under-assessed and the Income-tax Officer, therefore, proposed to re-assess the  said income; the assessee was asked to submit a  return in  respect of his total world income, for the two years  in question.   On  March  14,  1952,  the  Income-tax  Officer, Kottayam,  issued two similar notices to the assessee  under s.  47  of the Travancore Act stating therein  that  he  had discovered in consequence of definite information which  had come into his possession that the income of the assessee for the  two  years 1123 and 1124 assessable to  income-tax  had either escaped assessment or had been under-assessed or  had been assessed at too low a rate and therefore be proposed to re-assess  the  said  income.   Presumably,  the   Incometax Officer,  Kottayam, issued the two notices, because  it  was doubtful if the Income-tax Officer, Ernakulam, had authority to  issue notices to the assessee under the Travancore  Act.

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Nothing,  however,  turns upon this, so far as  the  appeals before us are concerned. On June 16, 1952, the assessee filed a writ petition in  the High  Court of Travancore-Cochin in which he challenged  the jurisdiction  of the Income-tax Officer, Ernakulam,  to  re- assess  his  income for the two assessment years,  1123  and 1124  M. E. On the very day on which the assessee filed  his writ  petition, the Incometax Officer, Ernakulam, made an  " escaped income " 762 assessment under s. 44 of the Cochin Act for the  assessment year 1123.  This’ order was communicated to the assessee  on June 17,1952, and the assessee filed a second writ  petition in,  the High Court TravancoreCochin ion June 19,  1952,  in which he again challenged the, jurisdictions of the  Income- tax-Officer,  Erhakulam to make the assessment Linder s.  44 of the Cochin Act and further said’ that %the assessment was made  in  spite of his application for adjournment  ’and  an ’order  of stay passed by the High Court on June  17,  1952. On June 20, 1952 the assessee filed a third writ petition in the  Travancore-Cochin  High  Court in respect  of  the  two notices  issued to him by the Income-tax Officer,  Kottayam. By   this   writ  petition  the  assessee   challenged   the jurisdiction  of the Income-tax Officer, Kottayam, to  issue the  two notices; in question under s. 47 of the  Travancore Act.  ;These  three  writ petitions,  numbered  as  original petitions 53, 56 and 57 of 1952, were dealt with together by the TravancoreCochin High Court and a Bench of three  Judges of  the  said High Court held by their  judgment  and  order dated September 14, 1953, that the, two Income-tax  Officers concerned  had jurisdiction to re-assess the income  of  the assessee  for the: two assessment years 1123 and 1124 M.  E. They  accordingly dismissed the writ petitions, but  without costs.   They,  however, gave a certificate that  the  cases were fit for appeal to the Supreme Court under Art. 133  of’ the Constitution and on that certificate the three  appeals, which  we have called Travancore-Cochin appeals,  have  been brought  to this Court, from the judgment and order  of  the High Court of Travancore-Cochin dated September 14, 1953. In the High Court three main points were urged on behalf  of the  assessee  :  the first point taken was  that  with  the passing  of  the Finance Act, 1950, which  made  Travancore- Cochin  a  " taxable territory " within the meaning  of  the Indian  Income-tax Act, 1922, incometax laws  of  Travancore and Cochin became void and inoperative and Parliament  could not,  under  s.  13,  keep  alive  the  Income-tax  Acts  of Travancore   and  ’Cochin,  or  any,   provisions   thereof, inconsistent with 763 the   Constitution Section 13 of the Finance Act,  1950,was, therefore, invalid in so   far as it tried to keep alive the Cochin  Act or the Travancore Act for the purpose  of  levy, assessment  and  collection of incometax,  for,  the  period referred to therein.  The second contention was that even if s. 13 of the Finance Act, 1950,was valid and kept alive  the provisions of the Cochin Act and the Travancore Act, it  did so  only  "  for the purpose of  the  levy,  assessment  and collection  of income-tax and super-tax " in respect of  the period  mentioned in the section, and s. 13(1) did not  have the,  effect of saving the provisions of the Travancore  Act or Cochin Act for, the purpose of " re-assessment of income- tax  and  super-tax ". The third contention urged  was  that neither  of  the two Income-tax Officers concerned  had  any definite  information in consequence of which they  came  to any  discovery that the income of the assessee for  the  two

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years  in  question  had been under’  -assessed  or  escaped assessment  or had been assesed at too low a rate.   It  was contended  on behalf of the assessee that the statements  in the  notices with regard to definite information  etc.  were only  " a pretence to clutch at jurisdiction " and the  very foundation  of the action sought to be taken by the  Income. tax  Officers under s. 44 of the Cochin Act or s. 47 of  the Travancore Act was non-existent.  The learned Judges of  the High  Court negatived the aforesaid contentions, and  as  we have already stated, the writ petitions. Before us the first point urged on behalf of the assessee in the High Court has not been pressed.  The other two  points, namely, (1) the true construction of s. 13(1) of the Finance Act,  1950, and (2) tile absence of any foundation  for  the action  sought to be taken under s. 44 of the Cochin Act  or s.  47  of the Travancore Act have been pressed  with  great vehemence.   A third point which was specifically raised  in the Mysore appeals in the High Court there and which  arises in  the  Travancore-Cochin  appeals  also,  has  been  taken :before us, though it was not specifically taken in the High Court of Travancore-Cochin.  We have allowed learned counsel for the assessee to raise the point, as 764 it involves a pure question of law.  The point is this.   In the  wake  of  accession and political  integration  of  the States and Unions of States with India arose the problem  of federal  financial integration.  The States ,and  Unions  of States,  so  long as they continued as separate  units,  had retained  their own pre-existing public finance  structures. They  had one common feature, distinguishing them  from  the Provinces  of  India, in that except in respect  of  certain matters  covered  by the Standstill Agreements,  the  States were free to follow their own policies in matters of federal finance and taxation, that is to say, in the field of public finance,  such  as  customs,  income-tax,  central   excise, railways,  posts and telegraphs etc.  When the  question  of integration of these States with India arose, naturally  the question of extinguishing the special rights and obligations of the States in the field of federal finance and of  making good to them the net gap in their revenues also arose.  By a resolution  dated October 22, 1948, the Government of  India appointed a committee of experts, referred to as the  Indian States  Finances Enquiry Committee, to consider the  problem of  federal  finance.  The Committee’s  terms  of  reference were, inter alia, as follows- "  To  examine and report upon: (1)the present structure of Public Finance in Indian  States and Unions of States; (2)the  desirability and feasibility of integrating  Finance in Indian States and Unions of States with that of the  rest of  India,  to  the end that a  uniform  system  of  Federal Finance may be established throughout the Dominion of India; (3)whether,  and if so, the extent to which the  process  of integrating Federal Finance in the Indian States  and Unions with  that  of the rest of India should be gradual  and  the manner  in  which  it  should  be  brought  about;  and  the machinery  required for his purpose, especially  as  regards the   legislative   groundwork   and   the    administrative Organisation  necessary for the imposition,  assessment  and collection of federal taxes; ". The Committee submitted a report in due course and 765 made  certain  recommendations.   On  the  basis  of   those recommendations certain agreements were entered into between the  President of India and the Rajpramukhs,  including  the

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Rajpramukh  of  Travancore-Cochin  and  the  Rajpramukh   of Mysore.  We shall refer in somewhat greater detail to  these agreements, particularly the agreements entered into by  the Rajpramukhs of Travancore-Cochin and Mysore.  The contention on behalf of the assessee is that these agreements with Part B  States with regard to certain financial matters  received constitutional sanctity in Art. 278 of the Constitution (now repealed by the Constitution (Seventh Amendment) Act, 1956). Article  278, so far as it is relevant for our purpose,  was in  these terms "  278 (1).  Notwithstanding anything in  the  Constitution, the  Government of India may, subject to the  provisions  of clause (2), enter into an agreement with the Government of a State specified in Part B of the First Schedule with respect to- (a)the  levy and collection of any tax or duty  leviable  by the   Government  of  India  in  such  State  and  for   the distribution  of  the  proceeds thereof  otherwise  than  in accordance with the provisions of this Chapter ; (b)............ (c)............ and, when an agreement is so entered into, the provisions of this  Chapter  shall in relation to such State  have  effect subject  to  the terms of such agreement." The  argument  on behalf  of the assessee is that the recommendations  of  the Indian States Finances Enquiry Committee which were accepted by  the  Rajpramukh of Travancore-Cochin  in  the  agreement entered  into by the Rajpramukh with the President of  India on  February  25,  1950, were designed  to  secure  "  legal continuity  of  pending  proceedings " and  "  finality  and validity  of completed proceedings " under  the  preexisting State legislation ; therefore, s. 13(1) of the Finance  Act, 1950, should be so construed as to be in consonance with the aforesaid agreement, and, in the alternative, if s. 13(1) is construed  to  be at variance with the  aforesaid  financial agreement, it should be 766 held  to be void by reason of the; provisions; of Arts.  278 and 295 of the Constitution. We proceed now to a consideration in detail of the arguments urged before us on behalf of the assessee in the Travancore- Cochin  appeals.  In logical sequence the point  as  to  the absence  of  foundation  for the -action taken  by  the  two Income-tax Officers of Ernakulam and Kottayam in the  matter of the issue, of" notices. for reassessment, comes first and we  propose  now to deal with it.  It is necessary  at  this stage to set out the two sections under which the Income-tax Officers proposed to take action against the assessee.   The two  sections are s. 44 of the Cochin Act and s. 47  of  the Travancore Act.  Section, 44 of the Cochin Act, so far as it is relevant for our purpose, is in these terms- " 44(1) If in consequence of definite information which  has come, into his possession the Income-tax Officer  discovers, that income’ profits or gains chargeable to income-tax  have escaped assessment in any year, or have been under-assessed, or  have been assessed at too low a rate, or have  been  the subject  of excessive relief under this Act  the  Income-tax Officer way, in any case in which he has reason to  believed that  the  assessee  has concealed the  particulars  of  his income  or  deliberately  furnished  inaccurate  particulars thereof,  at any time within eight years, and in  any  other case at any time within four years of the end of  that-year, serve,  on  the  person liable to pay tax  on  such  income, profits  or  gains, or, in the case of a.  company,  on  the principal officer thereof, a notice containing all or any of

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the  requirement,  which may be included in a  notice  under sub-section (2) of section 27, and, may proceed to assess or re-assess  such income profits or gains, and the  provisions of this Act shall so far as may be, apply, accordingly,as if the notice were a notice issued under that sub-section." Section 47 (1) of the Travancore Act is identical ill  terms and  need not therefore be, quoted.  It is worthy,  of  note that the terms of the. aforesaid two sections are similar to s.  34  of, the Indian Income tax Act,  1922,  as  it,.stood after the amending Act of 1939 and, before the amendments of 1948.  The two requisites conditions 767 for  the  application of the section are  contained  in  the first  part, and they are: firstly, there must  be  definite information which has come into possession of the Income-tax Officer  and, secondly, in consequence of that  information, the  Income-fax Officer discovers that,, income, profits  or gains  chargeable to income-tax have escaped  assessment  in any  year  etc.  It is only when these  two  conditions  are fulfilled  that  the Income-tax Officer can  take  necessary action under s. 44.  The question before us is whether these two conditions were fulfilled in the cases out of which  the TravancoreCochin appeals have arisen. As in the High Court so also before us, the only document on which the Income-tax Officers relied for this part of  their case is Ext.  VIII.  This document, according to the Income- tax   Officers,  furnished  the  definite   information   in consequence  of  which they made  the  necessary  discovery. Learned  counsel for the assessee has taken us through  Ext. VIII,  Ext.   A  (statement of the  case  submitted  by  the assessee  to the Appellate Assistant Commissioner)  and  the order  of  the Appellate Commissioner,  dated  December  14, 1953,  and  he has contended that (1) Ext.   VIII  does  not relate  to  the  years in question  and  cannot,  therefore, constitute  definite  information for those  years;  (2)  it gives  certain highly speculative grounds  for  discrediting the  account books of the assessee, which grounds  have  not been  accepted by the Appellate Assistant Commissioner;  and (3)  in any view, it contained no information on  which  the Income-tax   Officers  could  be  said  to  have  made   any discovery.  As to (1) above, the High Court rightly  pointed out  that Ext.  VIII contained information of a  kind  which disclosed a definite and systematic pattern of  transactions for avoidance of tax not only in respect of the year covered by  the  order  but  spread  over  years  anterior  to   it. Secondly, Ext.  VIII disclosed, according to the  Income-tax Officers concerned, a systematic suppression of cash Bales., a   regular  trade  in  purchase  and  sale  of   controlled commodities  at profiteering rates, passing bogus bills  for purchases, understating stocks, segregating stocks 98 768 for clandestine sales, and selling goods to the branches  at artificial book losses.  There can be no doubt that all this information, if honestly believed, would reasonably  support the  opinion  of  the Income-tax Officers that  there  is  a discovery of " escaped " income etc., within the meaning  of s.  44  of the Cochin Act and s. 47 of the  Travancore  Act. But  learned counsel for the assessee argues that  while  it may be right to say that Ext.  VIII prima facie contains the kind of information which will satisfy the conditions of  s. 44  of  the Cochin Act and s. 47 of the Travancore  Act,  we must  take note of the fact that according to the  Appellate Assistant Commissioner, as shown by his order dated December 14, 1953, the so-called information contained in Ext.   VIII

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was  really  non-existent, and the  information  being  non- existent,  there was no foundation for the action  taken  by the  Income-tax  Officers.   We are unable  to  accept  this argument as correct.  Apart from the consideration that  the order  of  the  Appellate  Assistant  Commissioner  was  not available when the Income-tax Officers issued their notices, we  think  that the argument overstates the  effect  of  the order  of the Appellate Assistant Commissioner.  It is  true that  the  Appellate Assistant  Commissioner  considered  in detail the various criticisms of the Income-tax Officer with regard  to  the account books along  with  the  explanations offered  on  behalf of the assessee; but  he  expressed  his final conclusion in the following words: "  I  have  given my careful consideration  to  the  various adverse  criticisms  of the Income-tax Officer  and  to  the Advocate’s  answers  thereto.  I have also looked  into  the accounts  and  other  revelant papers.  As a  result,  I  am satisfied  that the Income-tax Officer’s criticisms  are  in most cases not at all well founded and that the Advocate has successfully  met almost every point raised by  the  former. In fact, the Income-tax Officer himself admitted at the time of  the  hearing  that  has order  was  shown  to  be  quite vulnerable.  But he contended that it would not be enough if the Advocate merely answered the specific criticisms in  the order and that the case should be looked at as a whole and a decision should be arrived at as to whether on such 769 a  comprehensive  view  the appellant’s  accounts  could  be regarded as completely faultless and worthy of  unquestioned acceptance.  Seen from this broad angle, it cannot of course be  said that the accounts are free from defects.  There  is firstly  no  stock  book  for  uncontrolled  goods  and  the accuracy of the inventories of opening and closing stocks of such goods is therefore open to doubt.  Again, whatever  may be  the appellant’s reasons for not recording  full  details for  cash  sales, there is the admitted fact that  the  cash sales stand partly unvouched and details as to the names and addresses of purchasers are not available for the major part of  the  year,  and there is  therefore  no  possibility  of satisfying  one-self  whether all the cash sales  have  been duly  brought  to account.  There is also the  further  fact that  at least some of the purchases are not  satisfactorily vouched and that the rates of gross profit disclosed by  the accounts  both at the head office and the branches  are  not quite  adequate.   These,  in  my  opinion,  are  sufficient grounds  for discrediting the book results and resorting  to an estimate of the turnover as well as the gross profit." It  cannot,  therefore,  be  Raid  that  the  order  of  the Appellate  Assistant  Commissioner  washed  out  the  entire information  contained in Ext.  VIII so as to strike at  the very  root  of the jurisdiction of the  Income-tax  Officers concerned  to  issue the notices in question.  It is  to  be remembered  that there is a distinction between  receipt  of definite  information as a consequence of which a  discovery is made and a notice is issued, and the final  determination as  to  the  liability or extent of  liability  for  escaped assessment etc.  We accept as correct the view expressed  in Firm  Jitanram Nirmalram v. Commissioner of Income-tax  (1), that the phrase " definite information " cannot be construed in a universal sense and its meaning must depend on and vary with  the  circumstances of each case.  There is  no  doubt, however,  that  the information must be definite,  that  is, more than mere guess, gossip or rumour.  There must also  be a   causal  connexion  between  the  information   and   the discovery; but " discovery " in

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(1)  A.I.R. 1952 Pat. 163. 770 the  context  of the section does not mean a  conclusion  of certainty at the stage of notice.  What is necessary at that stage  is that the Income-tax Officer should have formed  an honest  belief upon materials which reasonably support  such belief.   This,  in our opinion, is the  correct  view,  and judged  from  that  standpoint,  Ext.   VIII  fulfilled  the requirements  of  s. 44 of the Cochin Act and s. 47  of  the Travancore Act. We now turn to the construction of s. 13 (1) of the  Finance Act, 1950.  The argument on this point has meandered over  a wide  area; but it is really dependent on the meaning to  be given  to  the  expression for the  purposes  Of  the  levy, assessment  and  collection of income-tax  and  super-tax  " occurring  in  the  section.   Does  the  word  ’assessment’ include ’re-assessment’ ?  The contention of the assessee is that it does not.  The Travancore-Cochin High Court did  not accept  this  contention, but the Mysore High Court  did  in favour of the respondents in the Mysore appeals. The general scheme of the Cochin Act and the Travancore  Act is the same as that of the Indian Income-tax Act, 1922,  and for  a clear understanding of the meaning of the  expression ’levy, assessment and collection of income-tax’, it is  best to explain the general scheme of these Income-tax Acts  with reference  to the Indian Income-tax Act, 1922, which  served more or less as their model. Section 3 is the charging section which imposes liability in respect of " the total income of the previous year of  every individual etc.", and ’total income’ means the ’total amount of  income,  profits and gains computed in the  manner  laid down  in the Act’.  It is clear that so far as the  charging section  is concerned, the liability does not  cease  unless the  total income, profits and gains have been  computed  in the  manner  laid down in the Act.  Section 4  states  inter alia  that subject to the provisions of the Act,  the  total income  of  any  previous year of any  person  includes  all income,  profits  and gains from  whatever  source  derived. Leaving   out  the  sections  which  deal  with   Income-tax authorities  we come to the sections in Chapter  111,  which explain what is 771 taxable income under different heads.  Chapter IV deals with deductions  and assessment, and the words  ’assessment’  and Ire-assessment’  occur in several sections of this  Chapter. Under  s. 22(2) the Incometax Officer must serve  notice  on any person whose total income is in the Income-tax Officer’s opinion of such an amount as to render such person liable to income-tax,  requiring  him  to  furnish  a  return  in  the prescribed  form  of his total income  during  the  previous year.  Sub-section (4) authorises the Income-tax Officer  to serve on any person upon whom a notice has been served under sub-s.  (2)  a  further  notice  requiring  him  to  produce accounts  and documents, subject to the limitation  that  he shall not require the production of any accounts relating to a period more than three years prior to the year previous to the year of assessment.  Section 23 provides for the  making of the assessment.  Sub-section (1) requires the  Income-tax Officer, if he is satisfied that the return made under s. 22 is  correct and complete, to assess the total income and  to determine the sum payable.  Under sub-s. (2) if the  Income- tax  Officer  has  reason  to believe  that  the  return  is incorrect or incomplete he must serve on the person who made the  return a notice requiring him either to attend  at  the Income-tax  Officer’s  office  or to  produce  any  evidence

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relied  on  in  support  of  the  return.   Sub-section  (3) provides  that  the Income-tax Officer, after  hearing  such evidence  as the person who made the return may produce  and such other evidence as the Income-tax Officer may require on specified  points  shall by an order in writing  assess  the total income and determine the sum payable.  Subsection  (4) makes  provision for an assessment by the Incometax  Officer to the best of his judgment if the assessee fails to make  a return or to comply with the terms of the notices issued  to him.   This  whole procedure, it may be recalled,  not  only applies on first assessment but is also prescribed by s.  34 if  for  any reason income, profits or  gains  have  escaped assessment or have been assessed at too low a rate.  Section 27   deals  with  cancellation  of  assessment  in   certain circumstances,  and  states " the Income-tax  Officer  shall cancel the 772 assessment  and  proceed  to  make  a  fresh  assessment  in accordance with the provisions of s. 23 ". Section 29  talks of  a notice of demand to the person liable to pay  the  tax etc., the notice specifying the sum so payable.  Section  30 gives  a  right of appeal from certain orders.   Section  31 deals  with. hearing of appeals and states inter  alia  that the  appellate authority may set aside the  assessment,  and direct  the Income-tax Officer to make. a fresh  assessment. Section  33 provides for appeals against the orders  of  the Appellate  Assistant Commissioner and ss. 33A and  33B  give powers  of  revision to the  Commissioner.   In  appropriate cases the Commissioner can cancel the assessment and  direct a  fresh assessment.  Then comes s. 34 which corresponds  to s. 44 of the Cochin Act and s. 47 of the Travancore Act.  In substance it deals with income which has escaped  assessment for  one  reason or another and says in the  operative  part that  the Income-tax Officer " may proceed to assess or  re- assess  such income, profits or gains etc." There  has  been some   argument  before  us  as  to  the  meaning   of   the juxtaposition of the words " assess or re-assess " occurring in the section, and it has been contended that a distinction has  obviously been drawn between income which  has  totally escaped assessment and income which has been  under-assessed or  assessed at too low a rate etc., and the  word  ’assess’ appropriately applies to the former case and the word ’  re- assess’  to the latter case.  Two other sections  which  are relevant for our purpose are ss. 66 and 67.  Section 66  (7) says  that  notwithstanding that a reference has  been  made under  this section to the High Court, income-tax  shall  be payable in accordance with the assessment made in the  case. The   word  ’assessment’  here  undoubtedly  includes   ’re- assessment’.  Section 67 which bars civil suits says that no suit  shall  be brought in any civil court to set  aside  or modify  any  assessment  made under  the  Act.   Here  again ’assessment’  must  include ’re-assessment’, for  it  cannot have  been  the  intention that a civil suit  shall  lie  in respect of a reassessment under s. 34 but not in respect  of an assessment. This brief resume of the relevant provisons of the 773 Income-tax Act clearly establishes that the word assessment’ has  to be understood in each section with reference to  the context in which it has been used.  In some sections it  has a  comprehensive meaning and in some a  somewhat  restricted meaning, to be distinguished from a ’re-assessment’ or  even a ’fresh assessment’. Now, the question is in what sense has the word  assessment’ been  used  in  s.  13(1) of the  Finance  Act,  1950.   Two

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circumstances may be noticed at once,.  The long title  says that the Finance Act, 1950, is an Act to give effect to  the financial  proposals of the Central Government for the  year beginning on April 1, 1950, and in s. 13(1) the  collocation of  words  is " levy, assessment and collection  of  income- tax".   In  our  opinion,  both  these  circumstances  point towards a comprehensive meaning; for it could not have  been intended, as part of the proposal of the Central Government, that  those  whose  income had  totally  escaped  assessment should  be  liable  but those who  had  been  under-assessed should go soot free.  We can see nothing in the words of the section which would justify such a distinction: we say  this quite  apart  from  the argument that  s.  13(1)  should  be interpreted  in  consonance  with  the  financial  agreement entered  into between the Rajpramukh and the  President,  an argument to which we shall presently advert.  Moreover,  the collocation of the words, levy, assessment, and  collection’ indicates that what is meant is the entire process by  which the tax is ascertained, demanded and realised. On behalf of the assessee it has been contended that (1) the Income-tax  Act  makes  a distinction between  a  normal  or original  assessment under s. 23, a fresh -assessment  under s.  27 and a re-assessment or second assessment under s.  34 and  (2)  inasmuch as s. 13 (1) uses the word  I  assessment only,  it  must be taken to have been used in  a  restricted sense.   In support of these contentions great reliance  has been  placed  on  the  decision  of  the  Privy  Council  in Commissioner  of Income-tax, Bombay Presidency and  Aden  v. Khemchand Ramdas (1).  The Mysore High Court also referred (1)(1938) L.R. 65 I.A. 236, 248. 774 to this decision in support of its view on the  construction of s. 13 (1).  We are unable to accept these contentions  as correct;  nor do we think that the decision  cited  supports the  view expressed by the Mysore High Court.  The facts  in Khemchands  case  (1)  were  briefly  these.   The  firm  of Khemchand applied to the Incometax Officer to have the  firm registered, the consequence of such registration being  that the  profits of the firm would not be assessable  to  super- tax.   On January 17, 1927, the Income-tax Officer  assessed the  firm  to income-tax for the year 1926-27 under  s.  23, sub-s.  (4) of the Act; but no super tax was imposed as  the firm having applied for registration was registered.  Notice of  demand  for  the  amount  assessed  was  made  in  1927. Subsequently,  the Commissioner ordered the cancellation  of registration,  and directed the Income-tax Officer  to  take necessary action thereupon.  On May 4, 1929, the  Income-tax Officer  imposed super-tax and issued a notice of demand  in May,  1929.   The  question in the appeal  was  whether  the Income-tax  authorities  had  any  jurisdiction  to   assess Khemchand’s  firm to super tax for the year 1926-27.   Their Lordships pointed   out that the powers of the  Commissioner tinder s. 33   could  only  be  exercised  subject  to   the provisions of  the  Act, of which the provisions in  ss.  34 and  35  were important.  They held that  it  was  debatable whether the circumstances of the case were such as to  bring it  within  s.  34 and so far as s. 35  was  concerned,  the Income-tax  Officer was hopelessly barred by time.  In  that context, their Lordships said: "  It is possible that the final assessment may not be  made until  some  years  after  the close  of  the  fiscal  year. Questions  of  difficulty may arise and  cause  considerable delay.  Proceedings may be taken by way of appeal and  cause further delay.  Until all such questions are determined, and all  such proceedings have come to an end, there can  be  no

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final  assessment.   But  when once a  final  assessment  is arrived  at,  it  cannot, in their  Lordships’  opinion,  be reopened except in the circumstances detailed in ss. 34  and 35  of  the Act (to which reference is made  hereafter)  and within the time (1)[1938] L. R. 65 I. A. 236. 775 limited  by  those  sections.   In  the  present  case   the liability  of  the respondents both for income-tax  and  for super-tax  wag  determined  by  the  Income-tax  Officer  on January 17, 1927.  In the order made by him on that date  he assessed the respondents to income-tax at the maximum  rate, but  as the respondents were at that time a registered  firm he  held, as he was bound to hold, that no super-tax was  to be  levied.  On some date before the end of March, 1927,  he served  on  the respondents a notice of demand for  the  tax that  he had determined was properly leviable.  The  assess- ment having been made under s. 23, sub-s. (4), no appeal lay in  respect  of it.  The assessment of the  respondents  was therefore final both in respect of income-tax and super-tax. Their  liability in respect of both taxes had  been  finally determined, and none the less because the question of  their liability  to supertax had been determined in their  favour. It  was, indeed, contended before their Lordships  that  the assessment  could not be regarded as having been  determined inasmuch  as  the  Commissioner  might  at  any  time,   and apparently after any lapse of time, however long, cancel the registration of the respondents as a registered firm and  so subject  the  respondents  to liability  to  pay  super-tax. Their  Lordships  would, in any case, hesitate  long  before acceding  to a contention that would lead to so  extravagant results.   In their opinion, however, the contention  cannot prevail.  The Commissioner’s powers under s. 33 can only  be exercised subject to the provisions of the Act, of which the provisions  in  ss.  34 and 35 are in this  respect  of  the greatest importance." These  observations  lend no support to the  view  that  the word"  assessment" must always bear a particular meaning  in the  Income-tax  Act.   On the contrary, at p.  247  of  the report, their Lordships said: " These two questions are so closely related to one  another that they can conveniently be considered together.  In order to  answer them it is essential to bear in mind  the  method prescribed by the Act for making an assessment to tax, using the word assessment 99 776 in its comprehensive sense as including the whole  procedure for  imposing  liability  upon the  tax-payer.   The  method consists,  of the following steps.  In the first place,  the taxable income of the tax-payer has to be computed.  In  the next  place,  the sum payable by him. on the basis  of  such computation  has  to be determined.  Finally,  a  notice  of demand  in  the  prescribed  form,  specifying  the  sum  so payable, has to be served upon the tax-payer." If  the  word ’ assessment ’ is taken in  its  comprehensive sense,  as we think it should be taken in the context of  s. 13(1)  of  the  Finance Act, 1950, it would  include  I  re- assessment’ made under the provisions of the Act.  Such ’re- assessment’  will without doubt come within  the  expression ’levy,  assessment  and collection of income-tax’.   In  his speech  in Commissioners For General Purposes of  Income-Tax For  City of London v. Gibbs and Others (1), Lord Simon  has pointed  out  that  the word ’assessment’  is  used  in  the English Incometax Code in more than one sense; and sometimes

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within the bounds of the same section, two separate meanings of the word may be found.  One meaning is the fixing of  the sum  taken to represent the actual profit and the other  the actual sum in tax which the taxpayer is liable to pay. It has been contended before us that the Finance Act and the Income-tax Act should be read together as forming one  Code, and  so  read the words I assessment’  and  I  re-assessment ’acquire definite and distinct connotations.  We are  unable to agree, for the reasons which we have already given,  that even  if we read the Finance Act along with  the  Income-tax Act  the  word  ’  assessment’ can  be  given  a  restricted meaning.   To  repeat  those reasons:  the  income-tax  code itself uses the word assessment in different senses, and  in the context and collocation of the words of the Finance Act, the word ’assessment’ is capable of bearing a  comprehensive meaning only.  We can find no good. reasons for holding that in the matter of levy, assessment and collection of  income- tax,  the Finance Act, 1950, contemplated that some  persons should enjoy a,, (1)[1942] A.C. 402, 406. 777 privilege and escape payment of the full tax leviable  under the  provisions  of  the relevant Act.   On  this  point  we approve of the decision in Firm L. Hazari Mal v.  Income-tax Officer, Ambala (1), where Bhandari C. J., said- "These   three   expressions   ’levy’,   ’assessment’    and ’collection’  are of the widest significance and embrace  in their  broad  sweep all the  proceedings......  for  raising money by the exercise of the power of taxation........ This brings us to the third question.  Is there any thing in the  financial  agreement  of February  25,  1950,  and  the recommendations  of  the  Indian  States  Finances   Enquiry Committee,   which  would  restrict  the  meaning   of   the expression ’levy, assessment and collection of  income-tax’? Or,  in the alternative, bring s. 13(1) of the Finance  Act, 1950,   into  conflict  with  Arts.  278  and  295  of   the Constitution? The relevant portion of the agreement between the  President of  India  and  the  Rajpramukh  of  TravancoreCochin  dated February 25, 1950, states: " Now, therefore, the President of India and the  Rajpramukh of  Travancore-Cochin,  have  entered  into  the   following agreement, namely :- The  recommendations of the Indian States  Finances  Enquiry Commitee, 1948-49 (hereinafter referred to as the Committee) contained in Part I of its report read with Chapters, 1,  11 and III of Part 11 of its Report, in so far as they apply to Travancore-Cochin  (hereinafter  referred to as  the  State) together   with   the  recommendations  contained   in   the Comittee’s  Second  Interim  Report,  are  accepted  by  the Parties hereto, subject to the following modifications." The  modifications  which  follow have  no  bearing  on  the question  at  issue and need not be set out.   Now,  let  us examine the relevant recommendations of the Committee, which are accepted by the Parties and form part of the  agreement. These  recommendations  are  summarised in para.  9  of  the annexure  to Part I of the Committee’s report, and  are  set out below- "Our suggestions concerning certain legal and 778 other matters of general importance, affecting most  federal subjects  including  taxes on income), which will  arise  in connection with federal financial integration in all States, have  been set out in paragraph 11 of Chapter 11 in Part  11 of  our  Report.   Those  relating  to  legal  matters  are,

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however, re-produced below for convenient reference:- "   (5)  Apart  from  the  constitutional   requirement   in connection  with  the  integration of  federal  finances  in States-vide  paragraphs  37  and 40 Part I  of  our  Report- certain  important  issues of a legal nature will  arise  in connection  with  the  actual taking over  of  "  federal  " subjects  in the States by the Centre.  This is a  difficult subject  upon which we are not qualified to offer  competent advice.  We have endeavoured, however, to indicate below the main features of what we conceive will be required in  order to establish " continuity of proceedings " in regard to  all "   federal   "  subjects-whether  relating   to   revenues, expenditure  or  Service Departments-at the point  of  their transition from the States to the Centre;...... (a)Almost  every  " federal " subject is dealt with  in  the State  as  in the rest of India, under powers  conferred  by appropriate legislation consisting of relevant Codes,  Acts, Ordinances and Statutory Rules and Regulations.  Subject  to the  limitations  indicated  below,-which  are  designed  to secure  legal  " continuity " of pending proceedings  and  " finality  and validity " of completed proceedings under  the pre-existing State legislation-, we think the whole body  of State legislation relating to " federal " subjects should be repealed  and the corresponding body of Central  legislation extended proprio vigore to the States, with effect from  the prescribed  date  or  as  and  when  the  administration  of particular " federal " subject is assumed by the Centre. (b)For  the above purpose, as well as for  future  "federal" administration  in States, it may be necessary  specifically to extend not merely the legislative, but also the executive and  administrative competence of the Centre,  its  officers and  "  authorities  ", and the judicial  authority  of  its Courts, to the territories of the States. 779 (c)Such  State  Courts (except Courts of final  appeal  from orders  of the State High Courts) as may in fact  correspond to particular grades and classes of "British Indian"  Courts (Civil and Criminal) may have to be statutorily " recognised "  as " corresponding judicial authorities " for purpose  of dealing with cases arising in the States under the " federal " laws of the Union of India; and the Supreme Court in India will  have  to  be  made the  Court  of  final  appeal  from decisions of the State High Courts to the same extent as  in the case of Provincial High Courts. (d)  Those   sections  of  the  various  Indian   Acts   and Ordinances  which  set  out their territorial  "  extent  of application  " will require amending so as to include  State territories with effect from the prescribed date. (e)It  will  be necessary to provide that  all  matters  and proceedings   pending   under,  or  arising  out   of,   the preexisting  State  Acts shall be disposed  of  under  those Acts, by so far as may be, the "  corresPonding  authorities ",  (nominated by the Chief Executive Authority)  under  the corresponding Indian Acts." In  view  of  the fact that the  members  of  the  Committee themselves felt that the legal issues involved in the actual taking  over  of " federal " subjects in the States  by  the Centre  constituted a difficult subject on which  they  were not  qualified to offer competent advice and  their  further statement that they were merely endeavouring to indicate the main  features  of what they considered to  be  required  in order  to  establish " continuity of proceedings ",  it  has been   argued  before  us  on  behalf  of   the   Income-tax authorities   that   it  would  be  wrong   to   treat   the recomendations  as binding statutory rules, even though  the

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financial  agreement  between the high  contracting  Parties states  generally that the recommendations are accepted;  it is contended that the Committee in express terms states that the  recommendations merely endeavour to indicate  the  main features  of  what the Committee thought was  required,  and they should not be placed on a pedestal higher than what the Committee itself did.  We think that there is much force  in this  contention;  but in the view which we  have  taken  of these 780 recommendations,  we  do not think that it is  necessary  to decide  finally  what  constitutional  sanctity  they   have acquired  by  reason of their acceptance  in  the  financial agreement   and   the  provisions  of  Art.   278   of   the Constitution.  Assuming but without deciding that they  have binding  force, what is their true meaning and effect?   The argument  on behalf of the assessee is that cl. (a)  of  the recommendations is the operative clause, and inasmuch as  it talks  of  "  continuity  of pending  proceedings  "  and  " finality and validity of completed proceedings " tinder  the pre-existing State legislation, the true effect is that  all assessment  proceedings  which  have  become  complete   and finance I by the issue of a demand notice under s. 29 of the Indian  Income-tax  Act  (or corresponding  section  of  the Cochin Act or Travancore Act) are saved under the clause and cannot be reopened; and only proceedings actually pending on the  relevant  date  can be continued  thereunder.   We  are unable  to  accept, this as the true meaning and  effect  of clause  (a).  What is worthy of special notice is  that  cl. (a)  specifically says that the clauses which follow it  are the limitations or qualifications subject to which the whole body  of State legislation is to be repealed, and  they  are designed   to  secure  two  objects-continuity  of   pending proceedings   and   finality  and  validity   of   completed proceedings; therefore, cl. (a) is not the operative clause, and  it  merely indicates the reasons or objects  for  which certain  limitations or qualifications are suggested on  the proposal  to  repeal the State legislation.  Clause  (a)  is followed  by cls. (b), (c), (d) and (e).  Clause  (b)  which deals  with  executive  and  administrative  competence   of Incometax Officers and judicial authority of Courts need not detain  us.   So also cls. (c) and (d),  which  have  little bearing on the problem before us.  Clause (e) is  important, and  it  states that " all matters and  proceedings  pending under, or arising out of, the pre-existing State Acts  shall be disposed of under those Acts etc." That a proceeding  for re-assessment under s. 44, Cochin Act, or s. 47,  Travancore Act,  is a proceeding arising out of the pre-existing  State Acts admits of no doubt, and is clearly covered by cl.  (e). We see no good grounds 781 why full effect should not be given to it; it is one of  the limitations,  as  stated in cl. (a), subject  to  which  the State law is to be repealed.  The matter is made still  more clear  by what is stated in the paragraph  that  immediately follows, viz. paragraph 10 of the annexure to the report  of the Committee.  That paragraph states- "  The  recommendation made in the  last  two  subparagraphs quoted  above  should be understood as  requiring  that  all income, profits and gains accruing or arising in States,  of all  periods  which are " previous years "  of  the  States’ assessment  years 1949-50 or earlier should, subject to  the provisions of section 14(2)(c) of the Indian Income-tax Act, be  assessed wholly in accordance with the States’ laws  and at  the  States’  rates, respectively,  appropriate  to  the

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assessment years concerned etc." really  no doubt left in the matter.  The Committee did  not restrict   the  limitations  they  were  suggesting,  to   a proceeding which was actually pending on the date of  repeal of  the  State  law;  it gave a  wider  meaning  to  pending proceedings-that is, "proceedings pending under and  arising out of the preexisting State Acts".  It is to be  remembered that where an assessment starts with a notice under s. 34 of the  Indian Income-tax Act (or corresponding section of  the Cochin  or Travancore Act), all the relevant  provisions  of that Act apply as effectively as where the assessment starts with  a notice under s. 22 (2)-or corresponding  section  of the Cochin or Travancore Act-in the ordinary course.  It  is also  not disputed that the assessment made under s.  34  in any year subsequent to the relevant assessment year must  be made as if it were made in the relevant assessment year, and the assessment must be based on the provisions of the Act as it stood in the year in which the income ought to have  been assessed.  Having regard to these considerations, we find no difficulty in holding that a re-assessment proceeding  under s. 44, Cochin Act, or s. 47, Travancore Act, is a proceeding which comes under cl. (e) of the recommendations of the 782 Committee,  and  must be disposed of under  the  preexisting State  law.  Section 13 (1) of the Finance Act, 1950,  gives effect to that recommendation.  There is, therefore, nothing in  the recommendations which would restrict the meaning  of the expression " levy, assessment and collection of  income- tax " in s. 13 (1) of the Finance Act; nor do they bring  s. 13  (1)  into  conflict  with  Arts.  278  and  295  of  the Constitution. We accordingly hold that there is no substance in any of the three  points  urged  on  behalf  of  the  assessee  in  the Travancore-Cochin appeals. Mysore Appeals. These are eight appeals and the relevant facts are these. Civil  Appeals  27  to 30 of 1956 arise  out  of  four  writ petitions  numbered  52 and 53 of 1953, and 105 and  106  of 1954,  which  were dealt with together in  the  Mysore  High Court  by a common judgment dated December 14, 1954.   Civil Appeals  161  to 164 also arise out of four  writ  petitions (no.  122  of 1954 and nos. 35 to 37 of 1955) filed  in  the same High Court.  The orders passed in those writ  petitions were that they were governed by the aforesaid decision dated -December  14, 1954. ln the result, all the  writ  petitions were allowed with costs. In  all  these cases the petitioners,  who  are  respondents before  us,  were assessed to income-tax  under  the  Mysore Income-tax Act, 1923 (hereinafter called the Mysore Act) for different  years previous to the integration of Mysore  with India,  and  the assessment proceedings were  completed  and closed under the Mysore Act by demand notices issued by  the Income-tax  Officers  concerned.   But  subsequent  to   the integration of Mysore, notices under s. 34 of the Mysore Act were issued against the petitioners, and they challenged the jurisdiction  of  the  Income-tax  Officers  to  issue  such notices.  Section 34 of the Mysore Act states- " If for any reason, income, profits or gains chargeable  to income-tax  has escaped assessment in any year, or has  been assessed  at too low a rate, the Income-tax Officer  may  at any time within four years of the end of that year, serve on the person liable to 783 pay tax on such income, profits or gains, or in the case  of a  company,  on the principal officer thereof,  a  notice  I

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containing  all  or  any of the requirements  which  may  be included  in a notice under sub-section 2 of s. 22, and  may proceed  to  assess, or re-assess such  income,  profits  or gains,  and provisions of this Act shall, so far as may  be, apply  accordingly  as if the notice were  a  notice  issued under that sub-section: Provided that the tax shall be charged at the rate at  which it  would  have  been charged, had the  income,  profits  or gains,  not escaped assessment, or full assessment,  as  the case may be." It  corresponds to s. 34 of the Indian Income-tax Act as  it stood  prior  to the amending Act of 1939  and  the  general scheme of the Mysore Act was the same as that of the  Indian Income-tax Act, 1922, as it stood before 1939. The two grounds on which the jurisdiction of the  Income-tax Officers was challenged were- (1)  Under  the  Finance  Act, 1950, the  Mysore  Act  stood repealed  on  and from April 1, 1950, and s. 13 (1)  of  the Finance  Act  kept alive the Mysore Act for the  purpose  of levy;  assessment and collection of incometax etc.  for  the period  mentioned  therein, but did not save s.  34  of  the Mysore  Act for the purpose of reassessment  of  income-tax; therefore, the notices issued under s. 34 of the Mysore  Act were without jurisdiction and authority. (2)  Even  otherwise,  the financial agreement  between  the President of India and the Rajpramukh of Mysore on  February 28, 1950, which received constitutional sanctity in Art. 278 of  the  Constitution rendered the initiation  of  such  re- assessment     proceedings    against    the     respondents unconstitutional and void. The  learned Chief Justice of the Mysore High  Court  upheld ground no. (1) and considered it unnecessary to pronounce on the second ground.  Mallapa J., in a separate but concurring judgment  expressed  the  view that  having  regard  to  the wording of s. 13 (1) of Finance Act, 1950, and the financial agreement  of February 28, 1950, he had no doubt that s.  13 (1) did 100 784 not provide for re-assessment under s. 34 of the Mysore Act. The process of integration of Mysore with India was  similar to.  that  of  Travancore-Cochin.   The  State  of  ,.Mysore acceded  to  the  Dominion  of India  by  an  Instrument  of Accession  executed on August 9, 1947, and accepted  by  the Governor-General  on  August  16,  1947.   A   supplementary Instrument of Accession was executed on June 1, 1949.  By  a Proclamation  dated November 25, 1949, the  Constitution  of India to be adopted by the Constituent Assembly of India was accepted for Mysore, and on January 26,1950, Mysore became a Part  B State within the Constitution of India.   A  similar financial agreement was entered into by the Rajpramukh  with the  President of India on February 28, 1950.  On  April  1, 1950,  the Finance Act, 1950, applied the Indian  Income-tax Act,  1922,  to Mysore, subject to the provisions of  s.  13 thereof. In dealing with the Travancore-Cochin appeals, we have fully dealt with the two grounds on which the respondent assessees in  the  Mysore appeals challenged the jurisdiction  of  the Income-tax Officers concerned to issue the notices under. s. 34  of  The  Mysore Act.  Two  additional  points  urged  in support  of ground no. (1) maybe stated here.  It  has  been urged that the proviso to s. 34 of the Mysore Act brings out the  distinction between I assessment ’ and ’  re-assessment ’; and secondly, it is contended that the jurisdiction under s.  34  is  limited to ascertainment  of  extra  income  not

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assessed  and  the section does not confer  jurisdiction  to make a new assessment, for taxing whole of that  assessment, under  the  Act.   Learned counsel  for  the  assessees  has invited  our  attention  to  In re  Kashi  Nath  Bagla  (1); Madhavjee Damodar Thackersay and Another v. Commissioner  of Income Tax, BOMBAY(2) and Anglo-French Textile Co. Ltd. v. Commissioner of Income Tax, Madras, No. 4 (3). The  real question    for decision in these appeals  is  the true  scope and effect of s. 13 (1) of the Finance Act,  and on that question the additional points’ mentioned (1) A. 1. R. 1932 All. 1.        (2) [1935] 3 I.T. R. 457.                 (3) [1950] 18 1. T. R. 106. 785 above  throw  very little light.  There is, indeed,  a  dis- tinction  between an original or normal assessment under  s. 23 and a re-assessment under s. 34; but we’ have shown  that the word " assessment " has been used in more than one sense in  Income-tax law, and( so far as s. 13 (1) of the  Finance Act,  1950,  is  concerned,  there  is  no  doubt  that  the expression I levy, assessment and collection of  income-tax’ has been used in a comprehensive sense so as to include  the whole procedure for imposing liability upon the taxpayer. Result : The  final  result, therefore, is-(a)  the  TravancoreCochin appeals  (Civil  Appeals 143 to 145 of 1954)  are  dismissed with costs; and (b) the Mysore appeals (Civil Appeals 27  to 30 of 1956 and Civil Appeals 161 to 164 of 1956) are allowed and the judgment and orders of the Mysore High Court are set aside.   The  appellants  in these Mysore  appeals  will  be entitled to their costs in this Court and the High Court  of Mysore. Appeals Nos. 143 to 145 dismissed. Appeals No. 27 to 30 and 161 to 164 allowed.