The judgment of the court was delivered by
SHAH, J.--The Commissioner of Income-tax for Mysore,
Travancore Cochin and Coorg at Bangalore 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 Act, 1096 (Malayalam Era) (hereinafter referred to
as the Income-tax Act), the following questions to the High Court of
Travancore-Cochin :
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 October 25, 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 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 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. 4,78,594-5-0 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 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
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 provisions 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 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 Opium and Revenue Laws (Extension of
Application) Act 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 XXXIII 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 . . .
. . . 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, namely :
(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 ..................
(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, clause (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 appellants with a view to assess or reassess 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. 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.
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 notwithstanding the restrictions contained in section 25 of
the Travancore Income-tax Act, VIII of 1096 ......... 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 section 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
re-assessment be commenced against a taxpayer. 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 Opium and Revenue
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 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.
In our view, there is no force in either of these
contentions. 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 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 section 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 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, therefore,
be regarded as effectuating the earlier order passed by the Travancore-Cochin
Government on February 14, 1950. In any event, there is nothing in section 8(2)
which justifies the contention that action may be taken thereunder only once. If
an unauthorised 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.
