The Income-Tax Officer, Bangalore v. K. N. Guruswamy

s:c.:R. SUPREME 'boURT ·REPORTS 785 above ~lirow vefr little light. There is, indeed, a dis-;9ss tinction between h.n original or normal assessment k •. h· --, b La s mana Snenoy un d er s. 23 an d a re-assessment un d er s. · 3 4; ut we . · v. ·· · have shown that the word "assessment" has been The Income-tax used in more than one sense in Income-tax law, and Officer. Ernakulam so far as s. 13 (1) of the Finance Act, 1950, is con-cerned,. there is ·no doubt that the expression 'levy, 5· K. Das J. assessment and collection of income-tax' has been used in a comprehensive sense so as to include the whole procedure for imposing liability upon the taxpayer. Result: The final result, therefore, is-(a) the Travancore-Cochin appeals (Civil Appeals 143 to 145 of 1954) are' dismissed with costs; and (b) the. Mysore appeals (CivU-Appeals 27 to 30 of 1956 and Civil Appeals 161 to 164 of 1956) are allowed and the judgment and orders of the Mysore High Court are set aside. The appellants in these Mysore appeals will be entitled to their costs in this Court and the High Court of Mysore. Appeals Nos.143 to 145. dismissed. Appeals No. 27 to 30 arul 161to164 allowed . . THE INCOME-TAX OFFICER, BANGALORE ', I , v. K. N. GURUSWAMY (S. R. DAS c. J., VENKATARAMA AIYAR, s. K. DAS, A. K. SARKAR and VIVIAN BOSE JJ.) Income Tax-Re-assessment-Taxable Area'in• Mysore within the jurisdiction of Governor-General in Council, retroceded in r947-Constitutional changes resulting in Mysore becoming a Part B State ~Financial agreement between the Presideni of India and the Raj-pramukh-Income:tax law applicable to Retroceded Area before and after the 'Retrocession-Re-assessment proceedings for period prior to r949·-Validity-Mysore Income"tax Act, r92j (Mysore Y of r923), S; 34-Mysore Income-tax and,· Excess Profits Tax (Application to' the Retroceded Area) (Emerg'ency) Act; r-948 ~Myso:·e XXXI of z958 April 28. 786 SUPREME COURT REPORTS [1959] 1958 I948), ss. 3, 5 (b), 6-Retroccded Area (Application of Laws) Act, I948 (Mysore LV II of I948), ss. 3, 4-Finance Act, I950 (XXV The Income-lox of I950), s. I] (I)--Indian Income-tax Act, I922 (XI of I922), Officer, Bangalore s. 34. 1958 1958 787 v. The respondent \Vas carrying on business as an excise con-J<. N. Gurusuxony 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 prom11lgated 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 l, 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 l, 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 I, 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 s. 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; subsequent-ly, in 1954 the Income-tax Officer served a notice on the res-pondent under s. 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 pro-ceedings under s. 34 or to make an order of re-assessment on the grounds inter alia (1) that s. 34 of the Indian Income-tax Act, 1922, was not saved bys. 13(1) of the Finance Act, 19501 because what was saved was the prior law "for the purposes of the • "levy, assesS~ent and collection of income-tax", ""·hich expres-sion did not inclpde re-assessment proceedings, (2) that the 787 S:C:R. SUPREME COURT'REPORTS 787 788 789 Section: CONCLUSION financial agreement made between- the •P,resident of India and x958 the Rajpramukh of Mysore -dated February 28, 1950, rendered the impugned proceedings unconstitutional and void, (3)' that The lnco111e-taM the .Indian Income-tax Act, 1922, as in force in the retroceded Officer, Bangalore area stood repealed onJune 30, 1948, by the Mysore, Income-tax v. and Excess Profits (Application to the Retroceded Area) K. N. Guruswamy (Emergency) Act, 1948,'and the saving provisions ins. Slb) there-of or in para (2), sub-para (b) of Sch. A to the Retroceded Area (Applicatio~ of Laws) Act, 1948, did not save s. 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, a,µd until f.,pril l, 1950, the Income-tax Officer in the retroceded area could re-qpen the assessment under s. 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,s: 34 of the Indian Income-tax Act. Held: (1) that-the expression "levy, assessment and collec-tion of income-tax" in s. 13(1) of the Finance Act, 1950, was wide .enough to comprehend re-assessment -proceedings under s. 34 of the I_ndian 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; Lakshmand Shenoy v. The Income-tax Officer, Ernakulam, [1g59] 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 Ret_roceded Area. (Application of Laws) Act, 1948, made the prior law available in all cases in which the in-come was assessed or was assessable according to that law before July I, · 1948, and, therefore, they saved s. 34 of"the Indian Income-tax Act, 1922, with regard to re-assessment proceedings ; City Tobacco Mart and Others ;/. I1tcome-tax Officer, Urban Circle, Bangalore, A:l.R 1955 Mys. 49, overruled. , . Hirjibhai Tribhu-wandas v. Income-tax Officer, Rajnandgaon and another, A.LR 1957 M. P. 171, approved. (3) that the Inco~e-tax Officer had the authority to re-open the assessments in the present case because the period of limita-tion was that laid down in s. 34 of the Indian l!'come-tax Act, as it was in force in the retroceded area, prior to July I, 1948. CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 165-168 of 1956. · :Appeals from the,judgment and order dated March 22, 1955, of the Mysore High Court in Wri~ Petitions • Nos. 20.to 22-and 25 of .1954. 788 SUPREME ·cOURT REPORTS [1959) H. N. Sanyal, Addl. Solicitor-General of India, R. i95S Th• Income-tax Ganapathy Iyer and R. H. Dhebar, for the appellant. Officer; Bangalore A. V. Viswanatha Sastri, K. R. Choudhury and v. Gopalakrishnan, for the respondent. respondent. A. V. Viswanatha Sastri, K. R. Choudhury and G. Gopalakrishnan, for the respondent. respondent. K. N. G·uruswatny 1958. April 28. 1958. April 28. The Judgment of the Court was delivered by s. I<. Das J. 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 assessee in the matter of re-assessment of income-tax for the years 1945-46, 1946-47, 1947-48, and 1948-1949. 789 790 791 1958 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 1947-48on January 22, 1949, and for 1948-49 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 s. 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 s. 34 of the Indian Income-tax Act, 1922. On February 19, 1954, the Income-tax Officer overruled the asstJssee's objection, and made a re-assessment order for the • year 1945-46. On February 25, 1954, the assessee filed four wr_it petitions in the Mysore High Court in S.C.R. St;J'PRE;ME COURT REPORTS 789 791 1958 1958 793 1958 which he challenged the ju:\isdiction of the Income-tax r958 Officer to take : proceedi~gs under s. 3~ or to make an The Income-tax order·of re-asse~sment m suqh proceedn;1gs; hl:l,.asked Officer, Ba.;galore for appropriate orders or writs quashing the pending v. proceedings for three ,years and the order of re-assesi;i;-1K. N. Guruswamy ment for 1945-46, During the. pendency of the cases in the High Court, the Income-tax Officer was permit-5· K. Das f. f. ted to.make an assessment order for 1946-47, subject to 1 the conditiop. th.at if the· .a&sessee succeedeQ.: in establishing that the Income-tax . Officer had ~·no jurisdiction, that order would. also be quashed., Th~ High Court heard all the four petitions together, and by its judgment and order dated March 22, 1955, allowed the writ petitions and ~ashed the proceedings in· assessment as ali;io the tw~ oraers of re-assessment, holdh1g that the. Income"'L1'.tf Ofµcer had no jurisdiction to ip.itiate the p:i;oceedings or to ma,ke 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 t}la.t certificate .. Before us, the appeals have been. heard together and will be governed by this judgment. For a clear understanding and appreciation of the is_sues involved in these appeals, it is necessary to set qµt, in brief outline, the political and constitutional changes which the retroceded area has from time to ti:me ,undergone ; because those changes had important legal consequences. Undei: the Instrument of Transfer executed sometime in 1881, when there was installa-tion of the l\faharaja of Mysore by what has been called " the rendition of the State of Mysore ", the l\1ahi;traja agreed to grant to the Governor-General in Coun,ci.1 such land as .might be required for the establishment and maintenance of a British canton-ment arn;l .to renounce all jurisdiction therein. ·Pursuant to tha~ agreement, the retroceded area was g:\!l!nted to. the 1 Gov-ernor-Genera~' in C0m;icil, and jurisdiction ther.ein· was. .exercised by virtue of powers given by the Ini.lian (Foreign Jurisdiction) Order in Council, 190~, made. under the Foreign Jurisdiction, A_ot, 1890. The laws administered in the area. included .various· • enactments made 'applical!le. 'thereto '.:fi:o~. ·t~me to Ba.;galore v. N. Guruswamy 5· K. Das f. f. 790 SUPREME COURT REPORTS 790 SUPREME COURT REPORTS [1959] r958 time by the promulgation of notifications made under , -the aforesaid Order in Council, and one of such T"' Income-tax h I d' I A Officer, Bangalore enactments was t e n ian ncome-tax ct, 1922. v. The ye:tr 194 7 ushered in great political and consti- 795 1958 K. N. G"rnswamy tutional changes in India, which affected not merely what was then called British India but also the Indian s. K. Das J. States, such as Mysore etc. The Indian Independence Act, 194 7, brought into existence two independent Dominions, India and Pakistan, as from August 15, 1947. The Act, however, received Royal assent on July 18, 194 7. 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 State~ lapsed, and with it lapsed all treaties, agreements etc.; J-J.Ktween His Majesty and the rulers of Indian States, incTuding 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 notifica-tion 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 J\faharaja of Mysore enacted two laws: the Retrocession (Application of Laws) Act 1947, being Act XXIII of 1947, and the Retrocession (Transitional Provisions) Act, 194 7 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 retro-ceded area (vide s. 3 of Act XXIII of 1947) and the Mysore office~s were g1 ven jurisdiction to deal with proceedings under the laws in force prior to the date of retrocession (see s. 12 of Act XXIV of 1947). This state of affairs continued till June 30, 1948, on which date was promulgated the Mysore Income-tax \tnd Exce,ss Profits Tax (Application to the Retroceded • Area) (Emergency) Act, 1948, being 'Act XXXI of 1948. Section a of this A'ct said-. S.C.R. SUPREME COURT REPORTS 791 · "Notwithstanding· anything to the ·contrary in z958 section 3 of the Retrocession (Application of Laws) The Income-tax Act, 1947, Officer, Bangalore Officer, Bangalore (i) the Mysore Income-tax Act, 1923, and (ii) the 'Mysore Excess Profits Tax Act, 1946, K. N. Guruswamy except sub-section (4) of section 2, and all rules, orders and notifications niade or issued under the aforesaid s. K. Das J. 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 provisioBs~fthis Act, the Indian Income-tax Act, 1922, and the Excess Profits Tax Act, 1940, as continued by the Retrocession (Applica-tion of Laws) Act, 1947, are hereby repealed." . The repeal of the Indian Income-tax Act, 1922, effected by s. 6 aforesaid, was subject to other provi-sions of Act XXXI of 1948, and one such pi·ovision which is material for the dispute before us was con-tained in s. 5, the relevant portion whereof was in these terms-· · "S. 5. Notwithstanding anything to the contrary in the Mysore Income-tax Act, 1923, or the Mysore Excess Profits Tax Act, 1946,-· . (a) ., ................................... ;;; ..................... . [ 1959 ] 797 . (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 'Retro-ceded Area immediately before thatdate shall apply to proceedings relating to the assessment of such income or profits until the stage of assessment, and the deter-mination ofthe income-tax and excess profits tax pay-able thereon, and the Mysore Income-tax Act, 1923, or the Mysore Excess Profits Tax Act, 1946, as the case may be, shall apply to sue~ proceedings af1ler that stage; .[1 ] 792 SUPREME COURT REPORTS [1959] (c) ................. ········· ....................... ············. (d) ............................................................. . O~~:r~n~::;~;;e (e) ''' ······ · ·'''' · ··· ·····'' ··''' ··· ····'' · · ·''' ····· ···' ·' ···r· ·. v. The effect of ss. 3, 5 (b) and 6 of Mysore Act, XXXI K. N. Gurnswamy of 1948, inter alia, was that though the Indian Income-tax Act, 1922, stood repealed and the Mysore Income-s. K. Das J. tax 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 a~ .the determination of income-tax but the Mysore Act, 1923, applied to such proceed-ings after that stage. On August 5, 1948, woe,s pro-mulgated 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-" s. 3. Except as hereinafter in this Act pro-vided,-(3) all laws in force in Mysore shall apply to the Retroceded Area ; and (b) the laws in force· in the Retro ceded Area immediately before the appointed day shall not, from that day, ha.ve effect or be operative in the Retroced-ed Area." "S. 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 s. 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) ., ..... ,· ..................................................... . 793 797