R. S. A. C. KASI IYER versus THE COMMISSIONER OF INCOME TAX, MYSORE, TRAVANCORE-COCHIN AND COORG, BANGALORE

September r.

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R. S. A. C. KASI I YER v. THE COMMISSIONER OF l:\"CO:\IE-TAX, MYSORE, TRAVANCORE-COCHI~ AND COORG, BANGALORE. (S. K. DAS, M. HIDAYATULLAH, K. c. DAS GUPTA, J. c. SHAH AND K. l{AJAGOPALA AYYANGAR, JJ.) Income-tax-Merger of Travancore-Cochin State with Indian Union-Government of I11dia's pw:er to direct assessment or re assessme11t proceedi!lgs-Trava11core Income-lax I<egulatio11 VII I of 1096 M. E.-Travancorc Taxation on ltzcome (Investigation Com mission) Act, II24 M. E. s. 8, sub-ss. (2), (4), (5), (6i-Opium and RevenuelLa!l's (Extension of Application) Act (33 of r950), ss. 2, 3, 3(c).

The State of Travancore-Cochin merged with Indian Cuion on March 7, r949, but the Travancore Income-tax Regulation, VIII of rog6 (Malayalam Era) and the Travancore Taxathn on Income (Investigation Commission) Act, 1124 (Malayalam Era), continued to apply to that area not withstanding the merger.

On August 6, r949, the Travancore-Cochin Government passed an order referring the case of the appellants to the com mission conf:itituted under the 'fravancore ·raxation on Income (Investigation Commission) Act, u24 ~I. E. The investigation commission held by its report that the appellants had made a secret profit in the accounting year 1u8 M. E., which was not included in the income-tax return submitted by the appellants earlier. The Travancore-Cochifl Government accepted the re port and directed recovery of the tax due by its order dated February 14, r950. The Income-tax Officer without holding any fresh assessment pro<:cedings, issued a demand notice.

The Cnion Legislature enacted the Opium and Revenue Laws (Extension of Application) Act (33 of r950) providing for extension of certain opium and revenue laws to certain parts of In exercise of the authority under s. 8(2) of the said India. Travancore Investigation Act, read withs. 3, cl. (c), of the Opium and Revenue Laws (Extensi6n of Application) Act, the Go\•ern ment of India, on Octoucr 25, 1951, directed that appropriate assessn1ent proce:edings under the ·rravancore Income-tax Act be taken agamst the appellants with a view to as.0 ess or re assess the concealed income which ha<l escaped assessment. ·rhe Commissioner of Income-tax withdrew the earlier notice of demand and thereafter the Income-tax Officer after reassess ment proceedings directed the appellants to pay income-tax and super-tax on the concea1ed income.

The said orders of the Government of India and of the

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Income-tax Officer were questioned by the appellants and the matter was referred by the Commissioner of Income-tax to .the High Court. The High Court held that the orders in question were valid orders. The appellant appealed with Special leave.

Held, that the Government of India had the powers under ·

s .. 3(c) of the Opium and Revenue Laws (Extension of Applica-The Commissioner 01 lHconie-tax, tion) Act, 1950, to direct proceedings for assessment or reassess- ment ·nuder the Travancore Income-tax Regulation after Myso'" T~avan­ consideration of the report made by the Travancore Investiga- core-Cochin &- tion Commission. Coorg, Bangalore

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R. s. A. c. Kasi Iyer v. . .

The order passed by the Government of India on February 14, 1950, was not inconsistent with the order passed by the Travancore-Cocbin Government. Liability to pay income-tax would arise only on an effective order of assessment. No such order having been passed by the Income-tax Officer in the instant case, there could be no doubt as to the competency of the· Government of India to direct proceedings for assessment. There is nothing in s. 8(2) of the Travancore Taxation on Income (Investigation Commission) Act which states that action may be taken thereunder only once, and if an unauthorised direction is given thereunder there is nothing which prevents rectification of that order.

By sub-s. (4) of s. 8 of the Travancore Taxation on Income (Investigation Commission) Act the findings by the Investigation Commission are final in all assessment or reassessment proceed ings. Section 8(2) of the Act removed the bar of limitation which arose bys. 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 assessinent did not operate as a bar to such re assessment.

C1v1L APPELLATE

No. 304/56.

JURISDICTION: Civil Appeal

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 respondent.

the

1960. September 1. The Judgment of the Court

was delivered by

SHAH J.-The Commissioner of Income Tax for Mysore, Travanoore Cochin and Coorg at Bangalore

-Shah].

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referred under s. 8(5) of the Travancore Taxation on Income (Investigation Commission) Act, 1124 (Mala ya.lam Era.)-hereinafter referred to as the Investiga.- tion Act read withs. 113 of tho Travancore Income Tlit Commissionu Tax Regulation, 1096 (lllalayalam Era.)-hereina.fter of Incom•-t•x. _ referr~d to as the Income Tax Act, the following ques Mysm, T'.aian- ( l) Whether on the facts and in the circumstances con-CBochsn f h b ,. l 'd oorg, anga ore _ e.ore t ie com- o t e case, t ere was any evt once mission to come to the conclusion to which it ca.me in Shah J. its report?

tions to the High Court of Travancore-Cochin:

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.(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 Tra.va.ncore 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?

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(3) Whether on the facts and in the circumstances of the case, the order passed by the Income Tax Offi cer in pursuance of the directions of the Government under.a. 8(2) of the Tra.vancore 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 preferr ed with special leave.

The facts which gave rise to the reference a.re briefly these. The appellants are a firm of merchants carrying on business in yarn in the Districts of Triva.ndrum and Na.gercoil in the Tra.va.ncore-Cochin State. For the accounting year 11181\1. E. (August 17, 1942 to August 16, 1943), the a.ppella.nts submitted a. return under the Income Tax Act showing a. net return of Rs. 4, 78,594- 5-0 as assessable income, and they were assessed to in come.tax and super tax by the Income Tax Officer on that return. In 1124 M. E., the Legislature of Tra.va.n core enacted the Investigation Act conferring authority upon the Government Qf Tra.vancore to cons~itut~ a. commission to be ca.lied an Income Tax In vestige. hon Commission to investigate and report on all matters

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0! Income-tax, Mysore, Travan- e overnment was core-Cochin &

relating to taxation on income, with particular refer- ence to the extent to which the existing law relating to, and procedure for, the assessment and col ection of such taxation . was inadequate to prevent evasion thereof and to investigate in accordance with the pro- The Commissioner visions of the Act in oases referred on or before Feb- ruary 16, 1950, to 1t un er s. 5. authorised after consideration of the report to direct coorg, Bangalore that proceedings be taken under the various Acts · including the Income Tax Act, in respect of any period commencing after August·l6, 1939. By sub-s. (4) of s. 8, all assessment or reassessment proceedings taken in pursuance of the direction under sub-s. (2), the find- ings recorded by the Commis8ion on the case or on the points refe.rred 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.

Shah J.

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The State of Travancore-Cochin merged with the Indian Union on March 7, 1949, but the Income Tax Act anc;l 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 urider 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 Com mission th•m proceeded to compute the tax payable by the appellants and found that the amount of tax pay· able 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 ord\ir dated February 14, 1950, accepted the report of th.e Commis sion and directed that .immediate sj;aps be taken to recover, under the Income Tax Act, from the appel lants the tax due according to the findings recorded by the Commission. Pursuant to this direction, the

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Income Tax Officer, without holding any fresh assess ment proceedings, issued on March 15, 1950, a demand 'I h I d notice un er s. 4 o 'ax Act for t c t e ncome additional tax imposed on the appellants according The Comm'"'°"" to the findings of the Commission and called upon the of Inco•'."''"'· appellants to pay Rs. 13,337-13-0 as additional tax. JJysorcr, ;'""'.,"' The Union Legislature enacted on April 17, 1950, the ) 1· ' " " ~ 0 · core- pp 1ca.t1un evenue ,aws Coorg, Ba>1galu" pmm an Act providing for the extenRion of certain opium and revenue laws to certain part8 of India. By s. 2 of that Act, amongst others, the Taxation on Income (Investi gation Commission) Act, XX X 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 extend ed to the rest of India except the State of Jammu and Kashmir, but bys. 3, in so far as it is material, it was provided that,

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" If immediately before the commencement of this Act there is in force in any part B State other than Jammu and Kashmir any law (xx xx) corresponding to the Taxation on Income (Investigation Commis sion) Act., 1947 (XXX of 1947), that law shall conti nue to remain in force with the following modifica tions,

(a) all cases reforrerl to or pending before the State Commission (by whatev1•r name called) in res pect of matter~ relating to taxation on income other than agricultural income, shall stand transferred to the Central Commission for disposal:

Provided ..................................................... . (b) .............................................................. . (bb) ........................................................... .. (c) Any rcferenc" i11 the State law, by whatever form of words, to the State Governm1mt or tho State Commission shall, in relation to income other than a<>ricultiiral income, be construed as a reference to the C~ntral Government or the Central Commission, as the ca.so may ho;".

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,

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1950, the Government of India, on October 25, 1951, directed that appropriate assessment proceedings under the Income Tax Act be taken against the appel- !ants with a view to assess or reasses the concealed income of Rs. i,31,750 which had escaped assessment. The Commissioner On January 1 1952 the Commissioner of Income Tax 11 '00~'.'- withdrew the 'not. ic; of demand dated March 15, 1950, Mysore'' an t ereafter the Income Tax Ofhcer commenced Coorg, Bangalore __ reassessment proceedings against the appellants and by his order dated March 29, 1952, directed the appel- Shah J. !ants to pay income-tax and super tax on the conceal- ed income.

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At the instance of the appellants, a reference was made to the High Court of Tra van core-Cochin under s. 8(5) of the Investigation Act and the three questions set out hereinbefore were referred to that court. In 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 incom petent, 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 Govemment shall by order in writing direct that such proceedings as they think fit under the Travancore Income Tax Act, VIII of 1096 ...... shall be taken against the person to whose case the report relates in respect of the income of any period commencing after the last day of Karkadagom, 1124 (August 16, 1939) and upon such a direction being given, such proceedings may be taken and completed under the appropriate law not withstanding the restrictions contained in s. 25 of the Travancore Income Tax Act, VIII of 1960 ...... and notwithstanding any lapse of time or any decision to

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a different effect given in the case by any Income Tax authority or Income Tax Appellate Tribunal".

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Shah J.

R. S. A. C. Kasi Iy" By s. 3 of the Opium and Revenue Laws (Ext~nsion of Application) Act, XXXIII of 1950, the Investigation The {:<>•1>•11ssio"" Act continued to remain in force with the modification that reference in the State law to the State Govern 01 Income·tax, Mys°'c'· 1h·rnv~•- ment was in relation to income other than agricultural core- oc ui ,,,.. Cooeg, Ban•aloee income, to be construed as a reference to the Central Government. Whatever authority could be exercised bv the Travancore-Cochin Goverument before the e;1aetment of the Opium and Hevenue Laws (Exten sion of Application) Act, 1950, could therefore, since the application of that Act, be exercised by the Central Government, and the latter Government could direct in respect of a case that proceedings for reassess ment be commenced against a tax payer. The case of the appellants was referred to the Investigation Com mission by the Travancore-Cochin Government and report was made to that Government by the Commis sion, and the authority of the Government of Travan core.Cochin to take action on the report having been conferred upon the Central Government by s. 3(c) of the Opium and Hcvenue Laws (Extension of Applica tion) Act, the Central Government was prima facie competent to direct that proceedings under the Income Tax Act as may be justifiable be tak.-11 against the appellants. But .M.r. Viswanatha Sastri appearing on behalf of the appellants contests that view on two grounds:

(1) that the Central Government ma.y direct pro ceedings to be taken under the Income Tax Act only if the report wa.s ma.do by a commission appointed under the Taxation on Incomo (Investigation Com mission) Act, XXX of 1947, and not on a rerort ma.de by a commission appointed by tho Travancore-Cochin State under the Investigation Act, and

(/!) that the Travancore-Cochin Government having once ta.ken 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.

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In our view, there is no force in either of these con- tentions. The expression "the report " in s. 8(2) refers to the report made under s. 8(1) by the members of the Commission appointed by the Travancore·Cochin Government under the Investigation Act and on a Tile Commissioner consideration of that report, the Government of' India 0! Income-tax, has· since the enactment of the Opium and Revenue Mysore, Travan- t L ' core-Cochin 6- pp 1cat1on aWS. xtens10n 0 ·O Coorg Bangalore · __ direct that proceedings for assessment or re.assessment he taken under the Income Tax Act. On the plain Shah J. 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 appel- lants is unsustainable.

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By order dated February 14, 1950, the Government. of Travancore-Cochin had accepted the report of the Commission and had directed the Boa.rd of Revenue to take necessary action for reeovery 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 Govern ment 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 Investi gation 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 pro ceedings be ta.ken 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, 1!)50. In any event, there is nothing in s. 8(2) which justifies the contention that action may be If an unauthorised taken thereunder only .once.

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direction is given under s. 8(2), there is not.bing in that provision which prevents rectification of that ordn.

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By sub-s. (4) of s. 8 of the ln\'cstiga.tion Act, the findi11gH recorded by the Commission in cases or points Thr Cnmmi"''"" referred t-0 theri1 are macle final in all aRsessment or reassessment proceedings. The Act has, by sub-s. (2) of 0/ /llcowHo·., " 1-'"".'· Jrnvau- s. 8 remored.the bar of limitation which arose by • 1 CO>t·Corh•• & c 00 twas con1petcnt t- icre- fore to the Income I ax Officer to reopen the assess. ment proceedings not w ithslll.nding any lapse of time and the prev ions order of assessment did not opPrate as a bar to such reassessment. The High Court was its therefore answers on the three questions submitted by the Com In that view, the appPal missioner of Income Tax. fails and is dismissed with costs.

in our judgment right in

recording

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Appeal dismissed.

THE BHOPAL SUGAI{ INDUSTRIE8 LTD. v. THE J'.'iCOME-TAX. OFFICEH, BHOPAL (8. K. DAS, j\f. HIDAYATULLAH, K. c. DAS GUPTA, J. c. SHAil ANO N. RAJAOOPALA AYYANOAR, J.J.) lo be [)irrcfion.< by superior Tribtmals-If could be refused

carried 011t-J>ri11ci'plrs (if adn1inistrafion of justice.

The Income-tax Appellate Tribunal in the exercise of its appellate jurisdiction gave certain directions to the respo1•dent. an Income-tax Officer, in connection \\'ith the ascertainment of the market value of sugarcane grown by the appellant at their farm and use<l by them for the manufacture of sugar. Th~ appel lant asked the Income-tax Officer to give effect to the said order and directions of the Tribunal but was informed that no relief coul<l be given. Thus the Income-tax Officer failed to carry out the directions of the Tribunal.

Held, that the refusal to carry out the directions which a superior Tribunal had given in exercise of its appellate powers was in effect a denial of justice and was furthermore destructive