Judgment Case ID: 599

Judgment:
Appeals Nos.165 168 of 1956. Appeals from the judgment and order dated March 22	 1955	 of the Mysore High Court in Writ Petitions Nos. 20 to 22 and 25 of 1954. 788 H. N. Sanyal	 Addl. Solicitor General of India	 R. Ganapathy Iyer and R. H. Dhebar	 for the appellant. A. V. Viswanatha Sastri	 K. R. Choudhury and G. Gopalakrishnan	 for the respondent. April 28. The Judgment of the Court was delivered by S.K. DAS J. These four appeals brought by the Income tax Officer	 Special Circle	 Bangalore	 on a certificate granted by the High Court of Mysore	 are from the judgment and order of the said High Court dated March 22	 1955	 by which it quashed certain proceedings initiated	 and orders of assessment made	 against the respondent assesse in the matter of reassessment of income tax for the years 1945 46	 1946 47	 1947 48	 and 1948 1949. The relevant facts are these. The respondent K. N. Guruswamy was carrying on business as an excise contractor in the Civil and Military Station of Bangalore	 hereinafter called the retroceded area	 in Mysore. He was assessed to income tax for each of the four years mentioned above under the law then in force in the retroceded area by the Income tax Officer having jurisdiction therein. For 1945 46 the original assessment was made on February 12	1946	 for 1946 47 on January 21	 1949	 for 1947 48 on January 22	 1949	 and for 1918 49 also sometime in the year 1949. The tax so assessed was duly paid by the assessee. On January 5	 1954	 more than four years after	 the Income tax Officer	 Special Circle	 Bangalore	 served a notice on the assessee under section 34 of the Indian Income tax Act	 1922	 for the purpose of assessing what was described as escaped ' or 'under assessed ' income chargeable to income tax for the said years. The assessee appeared through his auditors and contested the jurisdiction of the Income tax Officer to issue the notice or make a re assessment under section 34 of the Indian Income tax Act	 1922. On February 19	 1954	 the Income tax Officer overruled the assessee 's objection	 and made a re assessment order for the year 1945 46. On February 25	 1954	 the assessee filed four writ petitions in the Mysore High Court in 789 which he challenged the jurisdiction of the Income tax Officer to take proceedings under section 34 or to make an order of re assessment in such proceedings; he asked	 for appropriate orders or writs quashing the pending proceedings for three years and the order of re assessment for 1945 46. During the pendency of the cases in the High Court	 the Income tax Officer was permitted to make an assessment order for 1946 47	 subject to the condition that if the assessee succeeded in establishing that the Income tax Officer had no jurisdiction	 that order would also be quashed. The High Court heard all the four petitions together	 and by its judgment and order dated March 22	 1955	 allowed the writ petitions and quashed the proceedings in assessment as also the two orders of reassessment	 holding that the Income tax Officer had no jurisdiction to initiate the proceedings or to make the orders of re assessment. The High Court	 however	 granted a certificate that the cases were fit for appeal to this Court	 and these four appeals have been brought on that certificate. Before us	 the appeals have been heard together and will be governed by this judgment. For a clear understanding and appreciation of the issues involved in these appeals	 it is necessary to set out	 in brief outline	 the political and constitutional changes which the retroceded area has from time to time undergone; because those changes had important legal consequences. Under the Instrument of Transfer executed sometime in 1881	 when there was installation of the Maharaja of Mysore by what has been called " the rendition of the State of Mysore "	 the Maharaja agreed to grant to the Governor General in Council such land as might be required for the establishment and maintenance of a British cantonment and to renounce all jurisdiction therein. Pursuant to that agreement	 the retroceded area was granted to the Governor General in Council	 and jurisdiction therein was exercised by virtue of powers given by the Indian (Foreign Jurisdiction) Order in Council	 1902	 made under the Foreign Jurisdiction Act	 1890. The laws administered in the area included various enactments made applicable thereto from time to 790 time by the promulgation of notifications made under the aforesaid Order in Council	 and one of such enactments was the Indian Income tax Act	 1922. The year 1947 ushered in great political and constitutional changes in India	 which affected not merely what was then called British India but also the Indian States	 such as Mysore etc. The Indian Independence Act	 1947	 brought into existence two independent Dominions	 India and Pakistan	 as from August 15	 1947. The Act	 however	 received Royal assent on July 18	 1947. Section 7 set out the consequences of the setting up of the two new Dominions: one such consequence was that the suzerainty of His Majesty over the Indian States lapsed	 and with it lapsed all treaties	 agreements etc.	 between His Majesty and the rulers of Indian States	 including all powers	 rights	 authority or jurisdiction exercisable by His Majesty in an Indian State by treaty	 grant	 usage	 suffrage etc. In view of the aforesaid provision perhaps in anticipation of it	 the retroceded area was given back to the State of Mysore on July 26	 1947 by a notification Made by the Crown Representative under the Indian (Foreign Jurisdiction) Order in Council	 1937. This did not	 however	 mean that the Mysore laws at once came into force in the retroceded area. On August 4	 1947	 the Maharaja of Mysore enacted two laws: the Retrocession (Application of Laws) Act 1947	 being Act XXIII of 1947	 and the Retrocession (Transitional Provisions) Act	 1947 being Act XXIV of 1947. The combined effect of these laws was this: all laws in force in the retroceded area prior to the the date of retrocession	 which was July 26	 1947	 continued to have effect and be operative in the retroceded area (vide section 3 of Act XXIII of 1947) and the Mysore officers were given jurisdiction to deal with proceedings under the laws in force prior to the date of retrocession (see section 12 of Act XXIV of 1947). This state of affairs continued till June 30	 1948	 on which date was promulgated the Mysore Income tax and Excess Profits Tax (Application to the Retroceded Area) (Emergency) Act	 1948	 being Act XXXI of 1948. Section 3 of this Act said 791 "Notwithstanding anything to the contrary in section 3 of the Retrocession (Application of Laws) Act	 1947	 (i) the Mysore Income tax Act	 1923	 and (ii) the Mysore Excess Profits Tax Act	 1946	 except sub section (4) of section 2	 and all rules	 orders and notifications made or issued tinder the aforesaid Acts and for the time being in force shall with effect from the first day of July	 1948	 and save as otherwise provided in this Act	 take effect in the Retroceded Area to the same extent and in the same manner as in the rest of Mysore. " Section 6 said " Subject to the provisions of this Act	 the Indian Income tax Act	 1922	 and the Excess Profits Tax Act	 1940	 as continued by the Retrocession (Application of Laws) Act	 1947	 are hereby repealed. " The repeal of the Indian Income tax Act	 1922	 effected by section 6 aforesaid	 was subject to other provisions of Act XXXI of 1948	 and one such provision which is material for the dispute before us was contained in section 5	 the relevant portion whereof was in these terms " section 5. Notwithstanding anything to the contrary in the Mysore Income tax Act	 1923	 or the Mysore Excess Profits Tax Act	 1946	 (a). . . . . . . . . . (b)in respect of the total income or profits chargeable to income tax or excess profits tax in the Retroceded Area prior to the first day of July	 1948	 but which has not been	 assessed until that date	 the provisions of the Indian Income tax Act	 1922	and the Excess Profits Tax Act	 1940	 as in force in the Retroceded Area immediately before that date shall apply to proceedings relating to the assessment of such in come or profits until the stage of assessment	 and the determination of the income tax and excess profits tax payable thereon	 and the Mysore Income tax Act	 1923	 or the Mysore Excess Profits Tax Act	 1946	 as the case may be	 shall apply to such proceedings after that stage ; 101 792 (c). . . (d). . . (e). . . The effect of sections 3	 5 (b) and 6 of Mysore Act	 XXXI of 1948	 inter alia	 was that though the Indian Incometax Act	 1922	 stood repealed and the Mysore Incometax Act	 1923	 came into effect from July 1	 1948 the former Act as in force in the retroceded area prior to July 1	 1948	 continued to apply in respect of the total income chargeable to income tax in the retroceded area prior to July 1	 1948 but which had not been assessed until that date	 and it further applied to all proceedings relating to the assessment of such income until the stage of assessment and the determination of incometax but the Mysore Act	 1923	 applied to such proceedings after that stage. On August 5	 1948	 was promulgated the Retroceded Area (Application of Laws) Act	 LVII of 1948	 which came into effect from August 15	 1948. Sections 3 and 4 of Act LVII of 1948	 are material for our purpose and may be quoted "section 3. Except as hereinafter in this Act provided	 (3) all laws in force in Mysore shall apply to the Retroceded Area; and (b)the laws in force in the Retroceded Area immediately before the appointed day shall not	 from that day	 have effect or be operative in the Retroceded Area	." " section 4. The enactments in force in Mysore which are set out in the first column of Schedule A to this Act shall apply to the Retroceded Area subject to the modifications and restrictions specified in the second column of the said Schedule and	 the provisions of this Act. " Schedule A	 paragraph (2)	 sub paragraph (b) repeated ' in substance what was stated earlier in section 5 (b). of Act XXXI of 1948. It read " 2. Notwithstanding anything to the contrary in the Mysore. Income tax Act	 1923	 or the Mysore Excess Profits Tax Act	 1946 (a). . . . 793 (b) in respect of the total income or profits chargeable to income tax or excess profits tax in the Retroceded Area prior to the first day of July 1948	 but which has not been assessed until that date	 the provisions of the Indian Income tax Act	 1922	 and the Excess Profits Tax Act	 1940	 as in force in the Retroceded Area immediately before that	 date shall apply to proceedings relating to the assessment of such income or profits until the stage of assessment	 and the determination of the income tax and excess profits tax payable thereon	 and the Mysore Incometax Act	 1923	 or the Mysore Excess Profits Tax Act	 1946	 as the case may be	 shall apply to such proceedings after that stage; " There were further far reaching political and constitutional changes in 1949 50. The Maharaja of Mysore had acceded to the Dominion of India in 1947; this	 however	 did not empower the Dominion legislature to impose any tax or duty in the State of Mysore or any part thereof. By a proclamation dated November 25	 1949	 the Maharaja of Mysore accepted the Constitution of India	 as from the date of its commencement	 as the Constitution of Mysore	 which superseded and abrogated all other constitutional provisions inconsistent therewith and in force in the State. On January 26	 1950	 the Constitution of India came into force	 and Mysore became a Part B State within the Constitution of India. On February 28	 1950	 there was a financial agreement between the Rajpramukh of Mysore and the President of India in respect of certain matters governed by articles 278	 291	 295 and 306 of the Constitution. Under article 277 of the Constitution	 however	 all taxes which immediately before the commencement of the Constitution were being levied by the State continued to be so levied	 notwithstanding that those taxes were mentioned in the Union List	 until provision to the contrary was made by Parliament by law. Such law was made by the Finance Act	 1950	 by which the whole of Mysore including the retroceded area became " taxable territory " within the meaning of the Indian Income tax Act	 1922	 from April 1	 1950	 and the 794 Indian Income tax Act again came into force in the retroceded area from the aforesaid date. Section 13 of the Finance Act	 1950	 dealt with repeals and savings. As the true scope and effect of sub section (1) of section 13 is one of the questions at issue before us	 it is necessary to read it. " 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 territory 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	 assess ment 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: Provided that any reference in any such law to an officer	 authority	 tribunal or court shall be construed as a 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.	 Now, the legal effect of the constitutional changes referred to above, so far as it has a bearing on the present dispute, may be briefly summarised as follows: the Indian Income tax Act, 1922, remained in force in the retroceded area till June 30, 1948 ; from July 1, 1948, the Mysore Income tax Act, 1923, applied, subject to this saving that the Indian Income tax Act continued to apply in respect of the total income chargeable to income tax in the retroceded area prior to July 1, 1948, and the provisions of that Act as in force in the retroceded area prior to that date applied to all proceedings relating to the assessment of such income 795 upto the stage of assessment and determination of income tax payable thereon. This position continued till April 1, 1950, when the Finance Act, 1950, came into force and the Indian Income tax Act, 1922, again came into force in the retroceded area, subject to the saving mentioned in section 13(1) thereof. The principal question before us, as it was before the High Court, is one of jurisdiction. Did the Income tax Officer concerned have jurisdiction to issue the notice under section 34 of the Indian Income tax Act, 192 and to make a re assessment order pursuant to sue notice ? The High Court pointed out that though the notice did not clearly say so, the Income tax Officer clearly acted under section 34 of the Indian Income tax Act, 1922, as it was in force in the retroceded area prior to July 1, 1948, and the writ applications were decided on that footing. The four main lines of argument on which the respondent assessee rested his contention that the Incometax Officer concerned had no jurisdiction were these : firstly, it was urged that section 34 of the Indian Incomtax Act, 1922, was not saved by section 13(1) of the Finance Act, 1950, because what was saved was the prior law  for the purposes of the levy	 assessment and collection of income tax "	 which expression did not include re assessment proceedings; secondly	 it was argueed that	 even otherwise	 the financial agreement made between the President of India and the Rajpramukh of Mysore on February 28	 1950	 which received constitutional sanctity in article 278 of the Constitution rendered the impugned proceedings unconstitutional and void; thirdly	 it was submitted that the Indian Income tax Act	 1922	 as in force in the retroceded area stood repealed on June 30	 1948	 by Mysore Act XXXI of 1948	 and the saving provisions in section 5(b) thereof or in paragraph (2)	 sub paragraph (b)	 of Schedule A to Mysore Act LVII of 1948	 did not save section 34 in so far as it permitted re assessment proceedings in respect of years in which there had been an assessment already; and lastly	 it was contended that after June 30	 1948	 and until April 1	 1950	 the Income tax Officer in the retroceded area could re open 796 the assessment under section 34 of the Mysore Incometax Act	 1923	 within a period of four years specified therein	 but there was no authority to re open the assessment under section 34 of the Indian Income tax Act. Following its own decision	 City Tobacco Mart and Others vs Income tax Officer	 Urban Circle	 Bangalore (1)	 on certain earlier writ petitions (nos. 52 and 53 of 1953 and 105 and 106 of 1954)	 the High Court held in favour of the assessee on the construction of section 13 (1) of the Finance Act	 1950 and also oil the effect of the saving provisions in section 5 (b) of Mysore Act XXXI of 1948	 and paragraph (2)	 sub paragraph (b) of Schedule A to Mysore Act LVII of 1948. On these findings	 it held that the Income tax Officer concerned had no jurisdiction or authority to start the impugned pro ceedings or to make the impugned orders of assessment. It did not feel called upon to pronounce on the validity of the argument founded on the financial agreement dated February 28	 1950. In Civil Appeals 143 145 of 1954	 Civil Appeals 27 to 30 of 1956 and Civil Appeals 161 to 164 of 1956	 Lakshmana Shenoy vs The Income tax Officer	 Ernakulam (2)	 in which judgment has been delivered today	 we have fully considered the arguments as to the true scope and effect of section 13(1) of the Finance Act	 1950	 and of the financial agreement of February 28	 1950	 taken along with the recommendations of the Indian States Finances	 Enquiry Committee. We have held therein that the expression I levy	 assessment and collection of income tax in section 13 (1) is wide enough to comprehend re assessment proceedings under section 34 and that the financial agreement aforesaid	 on a true construction of the recommendations of the Enquiry Committee	 does not render the impugned proceedings Unconstitutional and void. That decision disposes of these two arguments in the present appeals. The two additional points which remain for consideration depend on the interpretation to be put on the saving provisions in section 5(b) of Mysore Act XXXI of 1948 and paragraph (2)	 sub paragraph (b) of Schedule (1) A.I.R. 1955 MYS. (2) [1959] S.C.R. 751. 797 A to Mysore Act LVII of 1948. These provisions are expressed in identical terms	 and the question is if they save section 34 of the Indian Income tax Act with regard to re assessment proceedings. We think that they do. It is worthy of note that the saving provisions say that the Indian Income tax Act	 1922	 as in force in the retroceded area prior to July 1	 1948	 shall apply in respect of the total income chargeable to income tax prior to that date and it shall apply to proceedings relating to the assessment of Such income	 until the stage of assessment and determination of income tax payable thereon. 'Total income ' means the total amount of income	 profits and gains computed in the manner laid down in the Act	 and there are no good reasons why the word 'assessment ' occurring in the saving provisions should be restricted in the manner suggested so as to exclude proceedings for assessment of escaped income or under assessed income. On behalf of the assessee our attention has been drawn to the words "in respect of the total income chargeable to income tax. . but which has not been assessed until that date " occurring in the saving provisions and the argument is that	 those words show that there was no intention to permit reopening of assessments which had been made already. We are unable to accept this argument. In its normal sense	 I to assess ' means 'to fix the amount of tax or to determine such amount '. The process of re assessment is to the same purpose and is included in the connotation of the term " assessment ". The reasons which led us to give a comprehensive meaning to the word " assessment " in section 13 (1) of the Finance Act	 1950	 operate equally with regard to the saving provisions under present consideration. We agree with the view expressed in Hirjibhai Tribhuvandas vs Income tax Officer	 Rajnandgaon and another (1)	 that section 34 of the Income _tax Act contemplates different cases in which the power to assess escaped income has been given; where there has been no assessment at all	 the	 term " assessment " may be appropriate and where there was assessment at too low a rate or with (1) A.I.R. 1957 M.P. 171. 798 unjustified exemptions	 the term re assessment ' may be appropriate	 and it may have been necessary to use two different terms to cover with clarity the different cases dealt with in the section ; but this does not mean that the two terms should be treated as mutually exclusive or that the word 'assessment ' in the saving provisions should be given a restricted meaning. The object of the saving provisions was obviously to make the prior law available in all cases in which the income was assessed or was assessable according to that law before July 1	 1948	 and it is difficult to see why only a part of the process of assessment should be saved and the other part repealed. We	 therefore	 hold that the saving provisions save section 34 of the Indian Income tax Act	 1922	 in its entirety	 as it was in force in the retroceded area prior to July 1	 1948	 and the contention of the respondent that it stood repealed from that date is not correct. As to the period of limitation	 it would be the period laid down in section 34 of the Indian Income tax Act as it was in force in the retroceded area prior to July 1	 1948. The result	 therefore	 is that these appeals succeed and the judgment and order of the High Court of Mysore dated March 22	 1955	 are set aside and the writ petitions filed by the respondent assessee are dismissed. The appellant will get his costs in this Court and the High Court. Appeals allowed.

Summary:
The respondent was carrying on business as an excise con tractor in the Civil and Military Station of Bangalore in the State of Mysore	 called the retroceded area. The jurisdiction ' over this area was originally exercised by the Governor General in Council by virtue of an agreement with the Maharaja of Mysore	 and the income tax law applicable was the Indian Income tax Act	 1922. On July 26	 1947	 the retroceded area was given back to the State of Mysore but the income tax law in force in that area prior to that date continued to have effect and be operative till June 30	 1948	 on which date was promulgated the Mysore Income tax Act and Excess Profits Tax (Application to the Retroceded Area) (Emergency) Act	 1948	 the effect of which was that the Indian Income tax Act	 1922	 stood repealed and the Mysore Income tax Act	 1923	 came into force subject to certain saving provisions. On August 5	 1948	 was promulgated the Retroceded Area (Application of Laws) Act	 1948. Between 1947 and 1950 there were political and constitutional changes which ultimately resulted in Mysore becoming a Part B State within the Constitution of India. The legal effect of these changes was that the income tax law applicable to the retroceded area till June 30	 1948	 was the Indian Income tax Act	 1922 ; from July 1	 1948	 the Mysore Income tax Act	 1923	 became applicable except that the Indian Income tax Act continued to apply in respect of the total income chargeable to income tax in the retroceded area prior to July 1	 1948	 and the provisions of that Act as in force in the retroceded area prior to that date applied to all proceedings relating to the assessment of such income upto the stage of assessment and determination of income tax payable thereon. This position continued till April 1	 1950	 when the Finance Act	 1950	 came into force and as a result the Indian Income tax Act	 1922	 became applicable again to the retroceded area	 subject to the saving provisions of section 13(1) of the former Act. In respect of the assessment for the four years between 1945 and 1949	 the respondent was assessed to income tax under the law then in force in that area; subsequently	 in 1954 the Income tax Officer served a notice on the respondent under section 34 of the Indian Income tax Act	 1922	 for the purpose of assessing " escaped " or " under assessed " income chargeable to income tax for the said years. The respondent challenged the jurisdiction of the Income tax Officer to take proceedings under section 34 or to make an order of re assessment on the grounds inter alia (1) that section 34 Of the Indian Income tax Act	 1922	 was not saved by section 13(1) of the Finance Act	 1950	 because what was saved was the prior law " for the purposes of the levy	 assessment and collection of income tax "	 which expression did not include re assessment proceedings	 (2) that the 787 financial agreement made between the President of India and the Rajpramukh of Mysore dated February 28	 1950	 rendered the impugned proceedings unconstitutional and void	 (3) that the Indian Income tax Act	 1922	 as in force in the retroceded area stood repealed on June 30	 1948	 by the Mysore Income tax and Excess Profits (Application to the Retroceded Area) (Emergency) Act	 1948	 and the saving provisions in section 5(b) thereof or in para (2)	 sub para (b) of Sch. A to the Retroceded Area (Application of Laws) Act	 1948	 did not save section 34 in so far as it permitted re assessment proceedings in respect of years in which there had been an assessment already	 and (4) that after June 30	 1948	 and until April 1	 1950	 the Income tax Officer in the retroceded area could re open the assessment under section 34 Of the Mysore Income tax Act	 1923	 within a period of four years specified therein	 but there was no authority to re open the assessment under section 34 Of the Indian Income tax Act. Held : (1) that the expression " levy	 assessment and collection of income tax " in section 13(1) Of the Finance Act	 1950	 was wide enough to comprehend re assessment proceedings under section 34 Of the Indian Income tax Act	 1922	 and that the financial agreement between the President of India and the Rajpramukh of Mysore	 on a true construction of the recommendations of the Indian States Finance Enquiry Committee	 did not render the impugned proceedings unconstitutional or void ; Lakshmana Shenoy vs The Incomc tax Officer	 Ernakulam	 [1959] S.C.R. 751	 followed. (2) that the saving provisions in the Mysore Income tax and Excess Profits (Application to the Retroceded Area) (Emergency) Act	 1948	 and the Retroceded Area (Application of Laws) Act	 1948	 made the prior law available in all cases in which the income was assessed or was assessable according to that law before July 1	 1948	 and	 therefore	 they saved section 34 of the Indian Income tax Act	 1922	 with regard to re assessment proceedings ; City Tobacco Mart and Others vs Income tax Officer	 Urban Circle	 Bangalore	 A.I.R. 1955 Mys. 49	 overruled. Hirjibhai Tribhuwandas vs Income tax Officer	 Rajnandgaon and another	 A.I.R. 1957 M. P. 171	 approved. (3) that the Income tax Officer had the authority to re open the assessments in the present case because the period of limitation was that laid down in section 34 of the Indian Income tax Act	 as it was in force in the retroceded area prior to July 1	 1948.