Case ID: 951

Judgment:
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. 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 section 8(5) of the Travancore Taxation on Income (Investigation Commission) Act	 1124 (Malayalam Era) hereinafter referred to as the Investigation Act read with section 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 section 8(2) of the Travancore Taxation on Income (Investigation Commission) Act read with section 3 of the 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 section 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 section 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 section (4) of section 8	 all assessment or reassessment proceedings taken in pursuance of the direction under sub section (2)	 the findings recorded by the Commission on the case or on the points referred to it were	 subject to the provisions of sub sections (5) and (6) to be final. Sub section (5) of section 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 section 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 section 42 of the Income Tax Act for the additional tax imposed on the appellants according to the findings of the Commission and called upon the appellants to pay Rs. 13	337 13 0 as additional tax. The Union Legislature enacted on April 17	 1950	 the providing for the extension of certain opium and revenue laws to certain parts of India. By section 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 section 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 section 8(2) of the Investigation Act read with section 3	 cl. (c)	 of the 	 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 section 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 commencing after the last day of Karkadagom	 1124 (August 16	 1939) and upon such a direction being given	 such proceedings may be taken and completed under the appropriate law not withstanding the restrictions contained in section 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 section 3 of the 	 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 	 could therefore	 since the application of that Act	 be exercised by the Central Government	 and the latter Government could direct in respect of a case that proceedings for reassess ment be commenced against a tax payer. The case of the appellants was referred to the Investigation Commission by the Travancore Cochin Government and report was made to that Government by the Commission	 and the authority of the Government of Travancore Cochin to take action on the report having been conferred upon the Central Government by section 3(c) of the 	 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 section 8(2) of the Investigation Act again to take any action on the report. 473 In our view	 there is no force in either of these con tentions. The expression " the report " in section 8(2) refers to the report made under section 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 	 power to direct that proceedings for assessment or re assessment be taken under the Income Tax Act. On the plain language used by the Legislature in section 3(c) of the 	 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 section 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 section 8(2) which justifies the contention that action may be taken thereunder only once. If an unauthorised 474 direction is given under section 8(2)	 there is nothing in that provision which prevents rectification of that order. By sub section (4) of section 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 section (2) of section 8 removed the bar of limitation which arose by section 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.

Summary:
The State of Travancore Cochin merged with Indian Union on March 7	 1949	 but the Travancore Income tax Regulation	 VIII of 1096 (Malayalam Era) and the Travancore Taxation on Income (Investigation Commission) Act	 II24 (Malayalam Era)	 continued to apply to that area not withstanding the merger. On August 6	 1949	 the Travancore Cochin Government passed an order referring the case of the appellants to the com mission constituted under the 'Travancore Taxation on Income (Investigation Commission) Act	 1124 M. E. The investigation commission held by its report that the appellants had made a secret profit in the accounting year 1118 M. E.	 which was not included in the income tax return submitted by the appellants earlier. The Travancore Cochin Government accepted the report and directed recovery of the tax due by its order dated February 14	 1950. The Income tax Officer without holding any fresh assessment proceedings	 issued a demand notice. The Union Legislature enacted the Opium and Revenue Laws (Extension of Application) Act (33 of 1950) providing for extension of certain opium and revenue laws to certain parts of India. In exercise of the authority under section 8(2) of the said Travancore Investigation Act	 read with section 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 Officer were questioned by the appellants and the matter was referred by the Commissioner of Income tax to the High Court. The High Court held that the orders in question were valid orders. The appellant appealed with special leave. Held	 that the Government of India had the powers under section 3(c) of the 	 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 section 8(2) of the Travancore Taxation on Income (Investigation Commission) Act which states that action may be taken thereunder only once	 and if an unauthorised direction is given thereunder there is nothing which prevents rectification of that order. By sub section (4) 'of section 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 section 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.