R. S. A. C. Kasi Iyer Vs. The
Commissioner of Income-Tax, Mysore, Travancore-Cochin [1960] INSC 137 (1
September 1960)
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 notwithstanding
the merger.
On August 6, 1949, the Travancore-Cochin
Government passed an order referring the case of the appellants to the commission
constituted under the 'Travancore Taxation on Income (Investigation Commission)
Act, 1124M. 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 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 Officers 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 there under only once,
and if an unauthorised direction is given there under 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.
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 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 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. 13,33713-0 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.
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 commencingafter
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
notwithstanding 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 reassessment 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 contentions. 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 reassessment 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 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 there under 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.
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