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

SHAH J.-The Commissioner of Income Tax for Mysore, Travanoore Cochin and Coorg at Bangalore referred under s. 8(5) of the Travancore Taxation on Income (Investigation Commission) Act, 1124 (Malaya.lam Era.)-hereinafter referred to as the Investiga.tion Act read withs. 113 of tho Travancore Income Tax Regulation, 1096 (lllalayalam Era.)-hereina.fter referr~d to as the Income Tax Act, the following questions to the High Court of Travancore-Cochin:

pp. 467–468

( l) Whether on the facts and in the circumstances h h 'd b ,. l o t e case, t ere was any evt once e.ore t ie commission to come to the conclusion to which it ca.me in its report?

p. 468

.(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?

p. 468, margin F

(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.a. 8(2) of the Tra.vancore Taxation on Income (Investigation Commission) Act, 1124, was a legal and valid order ?

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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.

p. 468, margin F

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 income.tax and super tax by the Income Tax Officer on that return. In 1124 M. E., the Legislature of Tra.va.ncore 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 relating to taxation on income, with particular reference to the extent to which the existing law relating to, and procedure for, the assessment and col ection 1 of such taxation . was inadequate to prevent evasion thereof and to investigate in accordance with the provisions of the Act in oases referred on or before Feb-

pp. 468–469, margin F

, d Th' G ruary 16, 1950, to 1t un er s. 5. e overnment 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·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 findings 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.

p. 469

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 Commission 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 Commission and directed that .immediate sj;aps 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 Income Tax Officer, without holding any fresh assessment proceedings, issued on March 15, 1950, a demand

pp. 469–470

. d 2 f h I 'I h notice un er s. 4 o t e ncome 'ax Act for t c 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 0 · d R (E t · f A 1 · . )

p. 470

pmm an evenue ,aws x ens10n o pp 1ca.t1un 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 (Investigation 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 extended 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,

p. 470

" 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 Commission) Act., 1947 (XXX of 1947), that law shall continue to remain in force with the following modifications,

p. 470

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

p. 470

Provided ..................................................... . (b) .............................................................. (bb) ........................................................... ..

p. 470

(c) Any rcferenc" 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;".

p. 470

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, 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. On January 1 1952 the Commissioner of Income Tax withdrew the 'not. ic; of demand dated March 15, 1950, an d h t ereafter the Income Tax Ofhcer commenced reassessment proceedings against the appellants and by his order dated March 29, 1952, directed the appel- !ants to pay income-tax and super tax on the concealed income.

pp. 470–471

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 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.

p. 471

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 :

p. 471

" 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 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 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 (Ext~nsion 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 bv the Travancore-Cochin Goverument before the e;1aetment of the Opium and Hevenue 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 Hcvenue Laws (Extension of Application) 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:

pp. 471–472

(1) that the Central Government ma.y direct proceedings 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 Commission) 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

p. 472

(/!) 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.

p. 472

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

p. 473

' (E · f A l" · ) A t 1950 t L aWS. xtens10n pp 1cat1on power direct that proceedings for assessment or re.assessment he 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.

p. 473

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 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 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 therefore 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 taken thereunder only .once. If an unauthorised 4i4 8UPRE:\fE COURT REPORTS [ 1961] direction is given under s. 8(2), there is not.bing in that provision which prevents rectification of that ordn.

pp. 473–474

By sub-s. (4) of s. 8 of the ln\'cstiga.tion Act, the findi11gH recorded by the Commission in cases or points referred t-0 theri1 are macle final in all aRsessment or reassessment proceedings. The Act has, by sub-s. (2) of s. 8 remored.the bar of limitation which arose by

p. 474

2 f I I T A 1 I • ~. 5 o t le ncorue ~~ ct. twas con1petcnt icre-

p. 474

fore to the Income I ax Officer to reopen the assess.

p. 474, margin C

1. 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 therefore in our judgment right in recording its answers on the three questions submitted by the Commissioner of Income Tax. In that view, the appPal fails and is dismissed with costs.

p. 474, margin C

Appeal dismissed. THE BHOPAL SUGAI{ INDUSTRIE8 LTD.

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v.

p. 474, margin C

THE J'.'iCOME-TAX. OFFICEH, BHOPAL (8. K. j\f. K. c. J. c. N. J.J.)

p. 474, margin C

[)irrcfion.< superior Tribtmals-If could refused lo carried 011t-J>ri11ci'plrs adn1inistrafion of justice.

p. 474, margin C

The Income-tax Appellate Tribunal in the exercise of its the market value of sugarcane grown by the appellant at their farm and by them for the manufacture of sugar. Th~ appellant asked the Income-tax Officer to give effect to the said order and directions of the Tribunal but was informed that no relief

p. 474, margin C

be given. Thus the Income-tax Officer failed to carry out the directions of the Tribunal.

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

p. 474, margin A