BALAKRISHNA RAO, J. - The Income-tax Appellate Tribunal, Patna Bench, of the Indian Income-tax Act :
'(1) Whether, in the absence of enacting yearly Finance Acts by the Gangpur State, the levy of the tax made in the supplementary assessment dated June 27, 1953, can be made upon the income for the assessment yea 1946-47 ?
(2) Whether the Income-tax Officer was competent to re-assess the income under section 23(4) read with section 34, in pursuance to section 7(1) of the taxation Laws (Extension to Merged States and Amendment) Act, 1949 ?'
The relevant facts appearing from the statement of the case by the Tribunal are as follows :
The assessee was a registered firm and was a resident in an Indian State, Gangpur State. The assessment year was 1946-47. The Indian Income-tax Act of 1922 with some modifications was adopted by the then existing feudatory State of Gangpur and came into force from 1st April, 1937. The Act was subject to certain rules made by the Gangpur State at the time when it was adopted and put into force.
The rules subject to which the Act was adopted are as follows :
'1. The Indian Income-tax Act came into force within the whole of Gangpur State from 1st April, 1937, and the Indian Income-tax Act of 1922 (Act XI of 1922) as amended by Act VII of 1939 is adopted in the State subject to the following local rules.
2. There shall be the following Income-tax authorities in the State for the purpose of the Act -
(a) The Dewan of the State will be Commissioner of Income-tax;
(b) The Assistant Dewan will be Assistant Commissioner of Income-tax;
(c) There shall be one Income-tax Officer.'
Part 1 deals with the rates of income-tax and says.'
'A. In the case of every individual, H.U.F., unregistered firm and other association of persons not being a case to which paragraph b of this Part applies :-
(a) Where the total income does not exceed Rs. 2,000 :
1. On the first Rs. 750 of total income - Nil.
2. On the next Rs. 1,250 of total income - six pies in the rupee........'
The there are various rates with regard to various slabs of income. Part 11 mentions the rates of super-tax. Rule 6 of the said Rule is to the following effect;
'The rules and orders that are issued by the Government of India from time to time under the Indian Income-tax Act, 1922, referred to above will be followed in the State.'
The Taxation Laws (Extension to Merged States and Amendment) Act, 1949, was enforced as from the 31st day of December, 1949. The relevant section for purposes of this reference is section 7(1) of the said Act which reads as follows :
'If immediately before the 26th day of August, 1949, there was in force in any of the merged States any law relating to income-tax, super-tax or business profits tax, that law shall cease to have effect except for the purposes of the levy, assessment and collection of income-tax and super-tax in respect of any period not included in the previous year......'
On March 4, 1947, the Income-tax Officer of the Gangpur State completed the original assessment for the assessment year 1946-47 at an income of Rs. 26,678. This assessment was final. After the merger of the State in the Indian Union, the Income-tax Officer, Jharsuguda, (Indian Union) discovered that on January 25, 1946, the assessee encased forty-nine high denomination notes of 1,000 each. After giving an opportunity to the assessee, the Income-tax Officer held that the said sum was income liable to tax and therefore re-assessed the income of the assessee under section 23(4) read with section 34 of the Gangpur State Income-tax Act, read with the aforesaid Taxation Laws (Extension to Merged Appellate Assistant Commissioner and before the Tribunal, the assessee made an application under section 66(1) for referring certain questions to the high Court. The Tribunal held on the materials given in its order that in accordance of definite that the amount of Rs. 49,000 escaped tax. It also held that there was omission on the part of the assessee to disclose this fact before the Income-tax Officer and that the period of limitation for initiating the proceedings under section 34 was eight years. The questions asked to be referred to by the assessee on these two matters, according to the Tribunal, being questions of fact were not referred to according to the statement in the case.
The assessee raised two contentions before the Tribunal to the effect, firstly, that under section 3 of the Indian Income-tax Act, there must be a Central Finance Act enacting the rates of income-tax for the year of assessment and as, such Finance Act was not passed by the Gangpur State, there was no rate in force so as to determine the tax and levy the same upon the income assessed. Consequently, no tax, according to the assessee, could be levied for the assessment year. The Tribunal rejected this contention. Secondly the assessee contended that under section 7(1) of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, the Income-tax Officer was entitled to levy, assess and collect income-tax and super-tax in respect of any preceding assessment year, but could not re-assess. According to the contention of the assessee, the Income-tax Officer had re-assessed the income under section 23(4) read with section 34 and since the original assessment was completed by the Income-tax Officer, Gangpur State, the Income-tax Officer, Jharsuguda, was not entitled to re-assess the income.
The Tribunal rejected the two contentions. On the first contention it held that the Rules made by the Gangpur State provided the rates of tax and therefore there was no necessity for a Finance Act. On the second content, the Tribunal held that though there were conflicting judgments with regard to this question in two decisions of two High Courts, yet in their opinion assessment included re-assessment and so rejected the said contention also. But the Tribunal on an application under section 66(1) referred the two questions arising from these contentions stated above for decision of this court.
Mr. B. N. Mohanty, the learned counsel for the assessee, contends that under section 3 of the Income-tax Act which is a charging section, no tax can be levied unless the annual Finance Act is passed. Section 3 of the Indian Income-tax Act is as follows :
'Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually.'
As this section contemplates levy of tax according to the rates passed by the Finance Act which is a Central Act, the learned counsel contends that as the Gangpur State did not pass the annual Finance Act or adopt the Central Act, the assessment is not legal. In my opinion, this contention cannot be accepted. The Rules for assessment of income-tax in the Gangpur State quoted above clearly state that the Indian Income-tax At is adopted subject to the fallowing local rules enumerated in the said order and one of those rules is the fixation of rates of income-tax leviable. The State at that time was, for all internal administrative purposes, a sovereign State. From the rules made thereunder it fixed once for all the rates of tax leviable on certain incomes. Thereby it clearly indicated that no annual Finance Act need be passed as the rates were fixed once for all or the annual Central Act adopted. It is therefore not necessary that the Gangpur State should have passed the Finance Act in order to enable the State to levy the assessment. The learned counsel, Mr. Mohanty, referred me to rule 6 in the said Rules to the effect that the rules and orders that are issued by the Government of India from time to time under the Indian Income-tax Act, 1922, should be followed in the State. But this rule does not in any way help the contention of the learned counsel for the assessee. It is only the rules and orders that a stated to be followed in the State. The annual Central Act contemplated is not a rule or order that is issued by the Government of India from time to time under the Indian Income-tax Act. I would, therefore, answer the first question in the affirmative.
With regard to the second question, the learned counsel for the assessee contends that the expression 'levy, assessment and collection of income-tax' in section 7(1) of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, does not include re-assessment and here in the case before us the assessment under section 23(4) read with section 34 being a re-assessment, the assessee having been assessed prior to that by the Gangpur Income-tax Officer, the Income-tax Officer, Jharsuguda (Indian Union), cannot make the re-assessment. In support of this contention, he relied on the case of City Tobacco Mart v. Income-tax Officer where the learned Judges of the Mysore High Court held that under such circumstances, the Income-tax Officer was not competent to reassess. In the case of Lakshman Shenoy v. Income-tax Officer, the learned Judges of the Travancore-Cochin High Court took a contrary view. They held that the words 'levy, assessment and collection' included all the processes by which the tax was ascertained, demanded and realised and 're-assessment' being one of those processes came within the ambit of the phraseology employed. As there was a conflict of opinion, the Tribunal appears to have referred this question for a decision of this court. But after the reference was made, the question was set at rest by a decision of their Lordships of the Supreme Court. The appeals before the Supreme Court were appeals against the above-said two decisions which were heard and disposed of together by the Supreme Court. In the case of Lakshman Shenoy v. Income-tax Officer, the Superme Court held : 'In the context and collocation of the words of the Finance Act, 1950, the word assessment is capable of bearing only the comprehensive meaning and would include re-assessment.Re-assessment will without doubt come within the expression levy, assessment and collection of income-tax occurring in section 13(1) of the Finance Act.
The three expressions levy, assessment and collection are of the widest significance and embrace in their broad sweep all such proceedings for raising money by the exercise of the power of taxation.
There is nothing in the recommendations of the Indian States Finance Enquiry Committee, 1948-49, on the basis of which agreements have been entered into between the President of India and the Rajpramukhs of Travancore-Cochin and Mysore on February 25 and 28, 1950, respectively, which would restrict the meaning of the expression levy, assessment and collection of income-tax in section 13(1) of the Finance Act; nor do the recommendations bring section 13(1) into conflict with articles 278 and 295 of the Constitution of India.'
This decision on the interpretation of the expression 'levy, assessment and collection of income-tax' applies applies equally to the use of that expression in the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, which was enforced from 31st of December, 1949. The Income-tax Officer, Jharsuguda, is therefore competent to make the assessment under section 23(4) read with section 34. I would, therefor, answer the second question also in the affirmative.
The assessee shall pay the costs of this reference. Hearing fee Rs. 100.
BARMAN, J. - I agree.
Questions answered in the affirmative.