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TMI Blog1954 (12) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction or authority to start such proceedings. The argument in support of this contention is two-fold: (1) that section 34 of the Mysore Income-tax Act stood repealed on and from 1st April, 1950, and that therefore the notice issued under that section by the Income-tax Officer after its repeal was without authority, and (2) that even otherwise, the agreement made between the President of India and the Rajpramukh of Mysore on 2nd February, 1950, under article 278 of the Constitution of India forbade the initiation of such proceedings. It would be necessary to state certain admitted facts to understand and appreciate the contentions put forward on either side. A Committee known as the Indian States Finances Enquiry Committee was appointed by the Union Government to examine and report among other matters- (a) on the desirability of integrating Federal Finance in Indian States and Union of States with that of the rest of India for the purpose of establishing a uniform system of Federal Finance throughout what then was the Dominion of India; and (b) as regards the legislative ground work and the administrative organisation necessary for the imposition, assessment and col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jects-whether relating to revenues, expenditure or Service Departments-at the point of their transition from the States to the Centre;..... (a) Almost every 'federal' subject is dealt with in the States as in the rest of India, under powers conferred by appropriate legislation consisting of relevant Codes, Acts, Ordinances and Statutory Rules and Regulations. Subject to the limitations indicated below,which are designed to secure legal "continuity" of pending proceedings and "finality and validity" of completed proceedings under the preexisting State legislation-we think the whole body of State legislation relating to "federal" subjects should be repealed and the corresponding body of Central legislation extended proprio vigore to the States, with effect from the prescribed date or as and when the administration of particular "federal" subjects is assumed by the Centre. (b) For the above purpose, as well as for future "federal" administration in States, it may be necessary specifically to extend not merely the legislative, but also the executive and administrative competence of the Centre, its officers and "authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent under the Indian Income-tax Act, 1922 (XI of 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:........" The position therefore was that after 1st April, 1950, the provisions of the Mysore Income-tax Act could not be used by the Income-tax authorities for any purpose other than the levy, "assessment" and collection of income-tax and super-tax, in respect of the pre-integration period. The respondents contend that the purpose of the proceedings started against the petitioner under section 34 of the Mysore Act was to make an assessment of the petitioner's escaped income within the meaning of the word "assessment" occurring in section 13 of the Finance Act and the proceedings are, therefore, competent. The petitioner contends that the assessment provided for by section 13 of the Finance Act refers only to an assessment to be made under section 23 of the Mysore Act, and not to proceedings under section 34. It is urged that under section 34 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of a company, the principal officer thereof, within one month from the service of a notice of demand issued as hereinafter provided, satisfies the Income-tax Officer that he was prevented by sufficient cause from making the return required by section 22, or that he did not receive the notice issued under sub-section (4) of section 22, or sub-section (2) of section 23, or that he had not a reasonable opportunity to comply, or was prevented by sufficient cause from complying, with the terms of the last mentioned notices, the Income- tax Officer shall cancel the assessment and proceed to make a fresh assessment in accordance with the provisions of section 23. 30. (1) Any assessee objecting to the amount or rate at which he is assessed under section 23 or section 27, or denying his liability to be assessed under this Act, or objecting to a refusal of an Income-tax Officer to make a fresh assessment under section 27, or to any order against him under sub-section (2) of section 25 or section 28, made by an Income- tax Officer, may appeal to the Deputy Commissioner against the assessment or against such refusal or order: Provided that no appeal shall lie in respect of an assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged at the rate at which it would have been charged, had the income, profits or gains, not escaped assessment, or full assessment, as the case may be." The petitioner contends that it is section 23 of the Mysore Act that confers the power on the Income-tax Officer to make an assessment and that the words "cancel the assessment" occurring in section 27, and "set aside the assessment" occurring in section 31 of the Act, support the view that the issue of a demand notice under section 29 of the Act completes the assessment and that the proceedings thereafter do not form part of it. The respondents urge that all proceedings initiated by the Income-tax Officer for the determination of the taxable income and the tax payable thereon, whether under section 23 or section 34 of the Act, have to be regarded as assessment proceedings, and support for this view is sought to be derived from the words "assess or re-assess" used in section 34 of the Act. It is significant that the word "re-assessment" is not found in section 13 of the Finance Act. It is true that section 34 of the Mysore Act provides for the taxation of income which has either escap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uper-tax should be made within a reasonable time of the assessment for income-tax, meaning, no doubt, by assessment the service of the notice of demand for income-tax which normally completes the assessment. "Rupchand Bilaram, A.J.C., was of opinion that the demand for super-tax should be made within a reasonable time, and, therefore, almost simultaneously with the demand for income-tax. Both of them held for this reason (amongst others) that the service of the notice of demand of May 4, 1929, was illegal and inoperative to impose liability upon the respondents. Their Lordships do not find it necessary to express any opinion upon this point inasmuch as in their view and for the reasons which they will now proceed to give it does not call for determination in the present case. "It had been argued on behalf of the appellant that the Act nowhere imposes any limit of time within which an assessment under the provisions of sections 23 and 29 is to be made, and that the service of the notice of demand can, therefore, be made at any time. This is true. It had, in effect, been so determined by this Board in the case of Rajendra Nath Mukherjee v. Commissioner of Income-tax [1934 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 29. The mere fact that the Commissioner of Income-tax could exercise his powers of revision under section 33 of the Income-tax Act or that the Income-tax Officer at any time within one year from the date of any demand may make rectifications and correct mistakes in his assessment did not make the assessment under section 23 of the Act any the less final or the proceedings under the Income-tax Act incomplete. The Lahore High Court in a case reported in Nawal Kishore v. Commissioner of Income-tax [1936] 4 I.T.R. 287 took the view that an assessment is concluded when the amount of tax payable by the assessee has been determined and a demand notice issued to him. On page 295, while referring to another Privy Council case reported in Rajendra Nath Mukerjee v. Commissioner of Income-tax [1934] 2 I.T.R. 71 they said as follows: "It must, however, be remembered that this observation was made by their Lordships to repel the contention raised on behalf of the appellant to the effect that assessment is a definite act and that if an assessment is not made on income within the tax year, then that income has 'escaped assessment' within that year and can be subsequently as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been more or less assumed that a re-assessment came within the ambit of the phraseology of the words employed in section 13 of the Finance Act. The respondents rely on another judgment of the Calcutta High Court reported in Jagmohan Goenka v. K.D. Banerjee [1954] 26 I.T.R. 637. All that was decided by the Calcutta High Court in that case was that more than one re-assessment was permissible under section 34 of the Indian Income-tax Act. The petitioner is, therefore, justified, in my opinion, in contending that section 13 of the Indian Finance Act, which repeals the Mysore Income-tax Act, does not save section 34 of the Mysore Income-tax Act so as to entitle the Income-tax Officer to re-open under that section pre-integration assessments. The petitioner, as already stated, contends further that the proceedings initiated by the Income-tax Officer are incompetent for another reason. This contention is based on the recommendations of the Indian States Finances Enquiry Committee read with the agreement entered into between the President of India and the Rajpramukh of Mysore on 28th February, 1950. It is urged that the recommendations of the Committee referred to in the agreement and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment" in section 13 of the Finance Act made it incompetent for the Income-tax Officer to issue the notices complained of to the petitioners. The omission of the word "re-assessment" in the said section must be deemed to be intentional as it was necessary to implement the recommendations of the Committee and the agreement between the President and the Rajpramukh. In this view, it is unnecessary, for the disposal of these cases, to consider the arguments in support of the contention that section 13, if it is deemed to include the power to issue notices for re-assessment, will be ultra vires of the Constitution. In the result, the petitions are allowed with costs. The writs prayed for will be issued. Advocate's fees ₹ 250 in each case. MALLAPPA, J.--The petitioner in C.P. Nos. 52 and 53 of 1953 was assessed to income-tax for the years 1946-47 and 1947-48 respectively, while the petitioners in Writ Petitions Nos. 105 and 106 of 1953 were assessed for the year 1949-50 and the income-tax due as per assessment made was recovered. Notices have been issued to them for purposes of re-assessment under section 34 of the Mysore Income-tax Act within the period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Committee. It will also be noticed that in paragraph 9 of the Annexure "Memorandum concerning matters relating to taxes on income", it is stated that "Subject to the limitations indicated below,-which are designed to secure legal continuity of pending proceedings and 'finality and validity' of completed proceedings under the pre-existing State legislation-, we think the whole body of State legislation relating to 'federal' subjects should be repealed and the corresponding body of Central legislation extended." It is clear that the object of the Committee, and hence that of the agreement, was that pending proceedings should be continued, under the old law, but that finality and validity in respect of completed proceedings should be secured. It is with this object that section 13(1) of the Indian Finance Act which refers to the repeal of the old Act except for certain purposes, was enacted. Hence section 13(1) of the Indian Finance Act must be deemed to be in accordance with what was intended by the Indian States Finances Enquiry Committee. It must be noticed that section 13(1) of the Indian Finance Act was framed with the intention "to sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act is also made applicable for levy, assessment and collection in respect of income of previous years for starting and completing proceedings when previous proceedings had not been started and completed and the income had totally escaped assessment. In such a case, no question of re-assessment under section 34 arises, it being a case of assessment under that section on the ground that the entire income had escaped assessment. The point as to there being two distinct proceedings is clarified in the commentary on the Indian Income-tax Act by A.C. Sampath Iyengar while dealing with the scope of section 34 in paragraph 981: "An additional assessment comes in only when there is in respect of the assessee a valid assessment for the tax year ex hypothesi insufficient. If hence the first assessment proceedings started duly by the issue of a notice under section 22(2) should not have reached the stage of an assessment order, there is no scope for an additional assessment. What the Income-tax Officer need do in such a case would be simply to include the newly discovered item in the assessment to be made and for that purpose he may issue notices under section 22(4) or 23(2) or sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings under section 34. In other words, it is made clear that proceedings are initiated under section 22(2) and they are completed by being continued up to the stage of section 33. The completion of the proceedings does not make the assessment final or unalterable as the matter could be re-opened for re-assessment under section 34 or section 35. Section 34 of the Mysore Income-tax Act deals with two kinds of cases. One may be a case where the entire income of a person has escaped assessment in any year. As observed in the commentary of A.C. Sampath Iyengar referred to above, the case would be one of escaped income. In such a case, notice under sub-section (2), section 22, will be issued as stated in section 34, and the Income-tax Officer will proceed to assess the income, profits or gains that has escaped assessment. That would be a case of assessment under section 34 as distinguished from a case of re-assessment under that section. If proceedings have already begun and completed but a portion of the income has escaped assessment or the entire income has been assessed at too low a rate, a notice would be issued under section 22(2) and the Income-tax Officer will proceed to re- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Act came into force, that fact would have been clearly stated in section 13 of the Indian Finance Act. The fact that section 13 refers only to assessment and not to re-assessment makes it clear that what was intended is to secure finality of completed proceedings under the Mysore Income-tax Act and not permitting re-opening of completed proceedings for re-assessment under section 34 of the Mysore Income-tax Act. Sri B.M. Chandrasekhar, who ably put forth the case on behalf of the respondents, contended that the words "levy, assessment and collection" must generally be understood in a broad sense and that these words must be taken as including, "re-assessment". He relied for the purpose on some decisions which may here be referred to. In Abdul Khadar v. Commissioner of Income-tax [1953] A.I.R. 1953 Trav.-Co. 526, it was observed: "The rule enunciated in section 13 is virtually the same as that contained in section 6 of the General Clauses Act that normally the repeal of an enactment shall not affect any liability incurred under the repealed enactment. With reference to the assessment proceedings of any year prior to the assessment for 1950-51 cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w ceased to have effect except for the purposes mentioned in that section, and those purposes were the purposes of the levy, assessment and collection of income-tax and super-tax. Therefore, to the extent that any question arose with regard to the levy, assessment or collection of income-tax from the petitioners, the question had to be determined according to the Baroda law. In this context, obviously, 'assessment' is used in its widest connotation. An assessment in this context is not merely the ascertainment of the amount due or payable by the assessee, but it also means all the procedure that has to be followed for the purpose of arriving at the amount for which the assessee is liable, and when the matter was pending before the Huzur Adalat of the Baroda Court it was in the course of the assessment of the petitioners, and until the Huzur Adalat had given its final decision, the assessment of the petitioners would not be complete." From the above, it is seen that this decision refers to proceedings commenced under section 22 and not completed, as they were pending decisions under some of the sections corresponding to the sections up to section 33 of the Mysore Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of tax payable by the assessee has been determined and a demand notice issued to him. The use of the words ' cancel the assessment', 'make a fresh assessment' and 'annul or enhance the assessment', in sections 27, 30 and 31 shows that the proceedings after the issue of the demand notice do not form part of the assessment." On the other hand, their Lordships in Commissioner of Income-tax, Bombay v. Khemchand Ramdas [1938] 6 I.T.R. 414 at 416 have made it clear what is meant by an assessment. Their Lordships have observed: "One of the peculiarities of most Income-tax Acts is that the word 'assessment' is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the taxpayer." These observations made in general terms as found in other decisions too, would appear to allow an argument that assessment includes reassessment and its collection. But that no such thing is intended is made clear later. Their Lordships were proceeding with a case in which a firm had not sent a return in compliance wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn is sent. No question of appeal arises in cases of that kind as no appeal is provided for. An assessment may be finally made in proceedings under sections 22 to 29 when a return is sent and these proceedings become complete when no appeals are filed. If appeals are filed or the matter is subjected to review or revision and those proceedings are terminated, the proceedings become then complete. But the proceedings are not final as they can be re-opened under section 34 or 35. This supports the conclusion that the proceedings of assessment are complete before the question of re-opening the matter arises under section 34 or 35. The Privy Council decision makes it clear that two distinct proceedings are contemplated for recovery of income-tax, one being that of levy, assessment and collection under sections 22 to 33, and the other being one of reopening the first assessment previously made and making a re-assessment under section 34. This justifies the inference that when under section 13(1) of the Finance Act the applicability of the State Act for purposes of levy, assessment and collection of income-tax is saved, it does not mean that the applicability of that Act is also saved fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the agreement referred to above, it is open to the objection that it is constitutionally bad. Article 245 states that the power of the Parliament to make laws is subject to the provisions of the Constitution. Articles 265 and 278 are two such provisions. Article 265 states that no tax shall be levied or collected except by authority of law while article 278 authorises the Government of India to enter into an agreement with the Government of a Part B State and provides for the provision of the chapter in which articles 265 and 278 are found to have effect subject to the terms of such agreement. Since such an agreement has been entered into and it is found that according to the terms of that agreement, the State legislation, such as the Mysore Income-tax Act, should only survive for fulfilling the object "to secure legal continuity of pending proceedings and finality and validity of completed proceedings under the preceding State legislation", it cannot be said that taking into consideration this aspect of the matter is of no importance. Giving anxious consideration to the wording of section 13(1) of the Finance Act and the object of the agreement, on the basis of which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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