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Mohammed Abdul Kader Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberI.T.R. No. 5 of 1956
Judge
Reported inAIR1962Ker38
ActsUnited State of Travancore-Cochin Administration and Application of Laws Ordinance, 1124 - Sections 3(1); Travancore Taxation on Income (Investigation Commission) Act, 1124 - Sections 5 and 8(2); Opium and Revenue Laws (Extension of Application) Act, 1950 - Sections 3; Travancore Income-tax Act, 1096 - Sections 18(3) and 25; Indian Income Tax Act - Sections 23(3) and 34; Constitution of India - Article 14
AppellantMohammed Abdul Kader
RespondentCommissioner of Income-tax
Appellant Advocate T.N. Subramonia Iyer and; S. Subramonia Iyer, Advs.
Respondent Advocate G. Rama Iyer, Adv.
Cases ReferredShree Meenakshee Mills Ltd. Madurai v. A.V. Viswanatha Sastri
Excerpt:
.....and application of laws ordinance, 1124, sections 5 and 8 (2) of travancore taxation on income (investigation commission) act, 1124, section 3 of opium and revenue laws (extension of application) act, 1950, sections 18 (3) and 25 of travancore income-tax act, 1096, sections 23 (3) and 34 of indian income tax act and article 14 of constitution of india - jurisdiction of central government to take action in respect of tax evasion challenged - central government only effectuated earlier order of state government - it did not revive, restore or resuscitate a case already disposed of by state government - held, action of central government within their competence by virtue of powers conferred on them by section 3. (ii) discrimination - whether act of 1124 discriminatory and opposed.....madhavan nair, j.1. this is a reference under section 8 (5) of the travancore taxation on income (investigation commission) act, 1124.2. the assesses way a dealer in empty tins, gunnies and tapioca starch. for the assessment year 1118 me. (1942-43) he was first assessed for a total income of rs. 37,004/- by an order dated 16-11-1118 of the deputy commissioner of incomo-tax, trivandrum, who, however, scon iniated proceedings to assess his escaped income for the year, and re-assessed him on a total income of rs. 57,927/- by his order dated 32-10-1120. for the year 1119 me (1943-44) the deputy commissioner assessed him on a total income of rs. 1,50,462/- by another order dated 32-10-1120. the asseesee's appeals before the commissioner of income-tax against the above-said assessments proved.....
Judgment:

Madhavan Nair, J.

1. This is a reference under Section 8 (5) of the Travancore Taxation on Income (Investigation Commission) Act, 1124.

2. The assesses way a dealer in empty tins, gunnies and tapioca starch. For the assessment year 1118 ME. (1942-43) he was first assessed for a total income of Rs. 37,004/- by an order dated 16-11-1118 of the Deputy Commissioner of Incomo-tax, Trivandrum, who, however, scon iniated proceedings to assess his escaped income for the year, and re-assessed him on a total income of Rs. 57,927/- by his order dated 32-10-1120. For the year 1119 ME (1943-44) the Deputy Commissioner assessed him on a total income of Rs. 1,50,462/- by another order dated 32-10-1120. The asseesee's appeals before the Commissioner of Income-tax against the above-said assessments proved unsuccessful. But on further appeal the Chief Revenue Authority of Travancore, by his order dated 7-10-1947, reduced the assessed incomes to Rs. 37,004/- and Rs. 84,921/- respectively for the above said two years.

On 7-3-1949 the Travancore Taxation on Income (Investigation Commission) Act, 1124 (Act XIV of 1124) (hereinafter referred to as the Travancore Investigation Act) was passed to come into force on such date as the Government might by notification appoint. No such notification was however issued by the Government up to 1-7-1943 when the State of Travancore was integrated with the State of Cochin to form the State of Travancore-Cochin. By Ordinance No. I of 1124, subsequently re-enacted by Act VI of 1125, the existing laws of Travancore were continued in force In the territory of the erstwhile State. By a notification on 26th July 1949 the Travancore Investigation Act was brought into force with effect from July 22, 1949.

Thereafter by an order dated 5-8-1949 the Government of Travancore-Cochin referred the case of the petitioner to the Commission for investigation of his escaped incomes. After an elaborate enquiry the Investigation Commission found that the actual income of the petitioner for the assessment years 1118 and 1119 ME were Rs. 66,287/- and Rs. 1,26,110/- respectively. This report was dated 10-1-1950. The Government of Travancore-Cochin by their proceedings dated 8-9-1950 accepted the report with the findings therein as to the actual income of the assessee and directed immediate steps to be taken for recovery of the tax due from the assessee as per those findings. In, pursuance of that directions, notices of demand for tax on the incomes found by the Commission were issued by the Income-tax Officer on 1-3-1950 without passing any formal assessment orders.

3. Matters remained thus when the Finance Act, 1950 and the Opium and Revenue Laws (Extension of Application) Act, 1950, (Central Acts 25 and 33 of 1950) became law in April 1958. The former extended the operation of the Indian Income-tax Act to the State and transferred the functions of all the authorities under the Travancore Income-tax Act to the corresponding authorities appointed under the Indian Income-tax Act; and the latter substituted the Central Government is place of the State Government in the Travancore Taxation on Income (Investigation Commission) Act. By virtue of the powers thus conferred, the Government of India on 30-5-1952 directed a seasment proceedings, under the Travancore Income-tax Act, 1096, to be taken against the assessee for the years 1118 and 1119 ME. Thereupon on 13-6-1952 the Income Tax Officer wrote to the assessee withdrawing the prior notices of demand issued to him, intimating therein that 'the proceedings arising out of the report of the Investigation Commission, referred to, will be taken up and completed in accordance with the law, in due course.'

4. Assessment orders under Section 18 (3) read with Section 25 of the Travancore Income-tax Act, 1098 corresponding to Sections 23(3) and 34 of the Indian Income-tax Act, were passed by the Income-tax Officer on 30-4-1954 in the light of the findings of the Income-tax Investigation Commission in their report dated 20-1-1950. The asseesee then filed a reference application under Section 5(5) of the Tracancore Investigation Act before the Commissioner of Income-tax, who rejected the same on 4-12-1954. Thereupon he moved the High Court for a writ to quash the report of the Investigation Commission and the assessment orders that followed the same on the ground that they were illegal and opposed to natural justice; but the High Court repelled his prayer. Meanwhile he had also moved an application in the High Court to require the Commissioner of Income-tax to refer the case, and On that the High Court required the Commission to state the case, and refer eight questions for its decision under Section 8 (5) of the Travancore Investigation Act. It is in compliance with that requisition that this reference has been made by the Commissioner of Income-tax.

5. The eight questions that were thus referred for decision by this Court are:

(1) Whether Act XIV of 1124 can be considered to have been in force on the 1st July, 1949 and was an existing law of Travancore for the purpose of Section 3 (1) of the United States of Travancore-Cochin Administration and Application of Laws Ordinance 1 of 1124?

(2) Whether under the Opium and Revenue A't of 1950 Central Government has jurisdiction to take action in respect of a case disposed of before the coming into force of the said Act under Act XIV of 1124, Travancore-Cochin State?

(3) Whether under the Opium and Revenue Act XXXIII of 1950 the Central Government can keep in force Act XIV of 1124?

(4) Whether Act XIV of 1124 Travancore is discriminatory and hence opposed to the Constitution and therefore void?

(5) Whether the burden of proof is not on the Income-tax Department to prove that there has been an evasion of payment of tax and if so whether the Commission has wrongly cast the burden of proof on the assessee?

(6) Whether the Income-tax Officer is competent to make a fresh demand on the basis of the Investigation Commission Report after having set aside an earlier demand made by him on the very same report?

(7) Whether the demand made by the Income-tax Officer is barred by limitation as no proceedings for the recovery of the tax had been commenced before the expiry of one year from the last date of the financial year?

(8) Whether the Investigation Commission has recorded the findings without adhering to the principles of natural justice and without complying with the provisions of Evidence Act and based its conclusions on surmises and conjectures and on extra-judicial information not brought on re-card or proved in the case?

6. Question 1: Admittedly the Travancore Investigation Act, 1124 received the Royal assent on 7-3-1049 and was published in the Gazette elated 15-3-1949; as such it became law of Travancore in March, 1949, even though by Section 1 (3) of the Act its operation was deferred to a date to be appointed by the Government by notification in the Gazette, which came to be only on 22nd July 1949. The commencement of operation of an enactment need not be simultaneous with its coming into being. If a particular enactment was on the statute-book before 1st July, 1949, it has to be regarded as 'existing law' on that date, unless it has been abrogated in the meanwhile.

As per Section 4 of the Travancore General Clauses Act of 1072 (passed on 13-6-1897) every Act in which no lime was mentioned or provision made for its commencement came into force upon its publication in the Government Gazette after the Royal assent thereto. It was by force of Section 1 (3) of the Travancore Investigation Act that the Government was authorised to issue a notification thereunder to postpone the commencement of the Act to a later date, and therefore Section 1 (3) should be deemed to have come into force on the very publication of the Act in the Gazette. Thus in any view, the Travancore Investigation Act was an 'existing law' from and after 15-3-1949. It was therefore existing law on 1-7-1949 though the Act, except Section 1 (3) therein, was not in operation on such date. (See the observation in paragraph 38 of Thangalkunju Musaliar v. Venkatachalam Potti, (S) AIR 1956 SC 246). The question has therefore to be answered in the affirmative.

7. Question 2: This relates to the jurisdiction of the Central Government to take action in respect of a case of evasion of Income-tax disposed of by the Travancore-Cochin State before the coming into force of Central Act XXXIII of 1950. The contention is that the Travancore-Cochin Government having passed order on the Commission's report on 8-2-1950 and the Income-tax Officer having in pursuance thereof issued notices of demand on 1-3-1950, nothing further had to be done in the case on. 18-4-1950 when atone the Central Act XXXIII of 1950 came to be passed and therefore the Central Government could not take any fresh or further proceedings in the case.

The order of 8-2-1950 ran thus:

'Government have considered the report of the Income-tax Investigation Commission forwarded, with the letter No. 30/I.C, dated 20-1-1950 of the Chairman, They accept the findings of the Commission and direct that immediate steps be taken for the recovery of the net amount of income-tax due from the party according to the said findings, under the Travancore Income-tax Act of 1096. The Board of Revenue will take the necessary action at once.

A copy of the report of the Commission is forwarded herewith............'.

Obviously, this did not empower the Income-tax Officer to issue notices of demand of Income-tax without reassessment of the tax due from the assessee. It only authorised him to take appropriate steps to recover the income-tax due from the party.

8. Section 8 of the Travancore Investigation Act only provided:

'(1) .....................................(2) After considering the report, Governmentshall 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 1114 (16-8-1939); 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.

(3) .. .. .. .. ., .. .. . .. ..

(4) In all assessment or re-assessment proceedings 'taken in pursuance of a direction under Sub-section (2), the finding recorded by the Commission on the case or on the points referred to it shall, subject to the provisions of Sub-sections (5) and (6), be final;...........''

It is evident therefore that after the acceptance of the Commission's report on escaped income, the Act contemplated an order of assessment or reassessment, as the case may be on the basis of that report.

9. Without a valid order of assessment fixing the tax payable by the assessee, no valid notice of demand can be issued under the Income-tax Act. Chagla C. J. (with the concurrence of Tendolkar, J.) in Kotak v. Commissioner of Income-tax, Bombay City, AIR 1952 Bom 242 held:

'When we turn to Section 29, what is provided is that when any tax, penalty or interest is due in consequence of any order passed under or in pursuance of the Income-tax Act, the Income-tax Officer shall serve upon the assessee or other person liable to pay such tax, penalty or interest a notice of demand in the prescribed form specifying the sum so payable. Therefore the notice of demand can only be served under this section provided tax, penalty or interest is due in consequence of an order passed under the Act. Therefore, the condition precedent to the validity of the notice of demand under Section 29 must be an order passed under the Act and the notice is merely consequential upon that order. Therefore, if there is no order under the Act, then no notice can be served under Section 26. Therefore, if ,......, in fact no order was passed under that sub-section, then the notice of demand under Section 29 is clearly bad and there was no liability' on the assessee to comply with that notice'.

The notice of demand issued by the State Income-tax Officer on 1-0-1950 not being in pursuance of any relative order of assessment has to be held void of legal effect.

10. Nothing further was done in the matter till 18-4-1950 when the Opium and Revenue Laws (Extension of Application) Act (XXXIII of 1950) was passed, which, by its Sec. 3 (c), provided 'any reference in the State law, (corresponding to the Taxation On Income (Investigation Commission) Act, 1947) by whatever form of words, to the State Government............shall, in relation. to income other than agricultural income, be construed as a reference to the Central Government.............'. Thus after 18-4-50 the authority to give directions under Section 8 (2) of the Investigation Commission Act, 1124, became vested in the Central Government. Accordingly, the Government of India, by their proceedings F. No. 76 (1)-I. T/52 dated 30th May 1952 ordered:

'After considering the Travancore Income-tax Investigation Commission's report dated the 20th January 1950 on the referred case of Jenab M. S. Mohammed Abdul Kader (Evasion case No. 3 of 1124), the Central Government hereby, in amplification, of the Order of the Government of Travancore-Cochin in D. Dis, No. 1099/49/RD, dated the 8th February 1950 direct that appropriate assessment proceedings under the Travancore Income-tax Act (VIII of 1096) shall be taken, against Janab M. S. Mohammed Abdul Kader with a view to assess or re-assess the amounts of income of the years 1117 and 1118 ME. which have been found by the said Commission to have, escaped assessment for the relevant assessment years'.

This order only amplifies the State Government's order of 8-2-1950 mentioned in paragraph 7 supra. That order of 8-2-1950 did not indicate the exact steps to be taken in the matter. The Travancore Income-tax Officer thought that a mere notice of demand would be sufficient in the matter, though legally he could not issue a notice of demand except in pursuance of an order of assessment. The Central Government found these defects; and in order to rectify the same issued their order of 30-5-1952 amplifying, the State Government's order of 8-2-1950 and indicating clearly what the Income-tax authorities, should do in implementing the latter. Thus the Central Government only effectuated the earlier order of the State Government. It did not revive, restore or resuscitate a case already disposed of by the State Government. The action-of the Central Government was perfectly within their competence by virtue of the powers conferred on them by Section 3 of Act 33 of 1950. See also Kasi Iyer v. Commissioner of Income-tax, (1931) Ker L. T. (SC) 7 :(AIR 1961 SC 210) The question No. 2 is therefore answered in the affirmative.

11. Question 3 : This relates to the legality or validity of the provisions of the Central Act 33 of 1950 which purported to retain, in force the Travancore Investigation Act, 14 of 1124. Nothing was made out at the Bar to doubt the validity of the parliamentary enactment. 'Taxes on income other than agricultural income' being an item of the 'Union List' in the Seventh Schedule to the Constitution, the Parliament's competence to enact measures like the Act 33 of 1950, cannot be questioned. In providing for the retention in force of the Travancore Investigation Act, the Parliament was only adopting its provision as their own enactment. In 1961 Ker L. T. (SC) 7: (AIR 1961 SC 210), the Supreme Court assumed the validity of Act 33 of 1950 and held:

'Whatever authority could be exercised by the Travancore Cochin Government before the enactment of the Opium and Revenue Laws (Extension or Application) Act, 1950, could, since the application of that Act, be exercised by the Central Government'.

The question has therefore only to be answered in the affirmative.

12. Question 4 : This question relates to the Constitutional validity of the Travancore Investigation Act, 1124. It is contended that Section 5 of the Act is discriminatory in that only persons whose cases are referred to by the Government before the last day of Makaram 1125 (ll-2-1950) for 'investigation' by the Commission were to be proceeded against under the Act, while other persons who had made substantial evasion of tax for the identical period not so referred to by Government within the time limit prescribed by the Act were left free of such proceedings and in that the more drastic procedure prescribed by it for assessment of escaped incomes ran parallel to the ordinary procedure prescribed in Section 25 of the Travancore Income-tax Act for the identical relief and as such the Act laid foundation for a discriminatory treatment among the tax-evaders of the same category. Reliance was placed on Shree Meenakshee Mills Ltd. Madurai v. A.V. Viswanatha Sastri, (S) AIR 1955 SG 13 in support of the above contentions,

13. The identical question has been considered by the Supreme Court in a later decision (S) AIR 1956 SC 246 where their Lordships after referring to the dicta in (S) AIR 1955 SC 13 upheld the constitutional validity of the Travancore Investigation Act, 1124, and observed:

'It was, however, urged that it would be open to the Government within the terms of Section 5 (1) of the Act itself to discriminate between person and persons who fell within the very group or category; the Government might refer the case of A to the Commission leaving the case of B to be dealt with by the ordinary procedure laid down in the Travancore (Income-tax) Act XXIII of 1121. The possibility of such discriminatory treatment of persons falling within the same group or category, however, cannot necessarily invalidate this piece of legislation.

It is to be presumed, unless the contrary were shown, that the administration of a particular law would be done 'not with an evil eye and unequal hand' and the selection made by the Government of the cases of persons to be referred for investigation by the Commission would not be discrimimtory.

. .......If the legislative policy is clear and definite and as an effective method of carrying out that policy a discretion is vested by the statute upon a body of administrators or officers to make selective application of the law to certain classes or groups of persons, the statute itself cannot be condemned as a piece of discriminatory legislation.

. ........The power given to the executive body would import a duty on it to classify the subject-matter of legislation in accordance with the objective indicated in the statute.......It, therefore, follows that the mere fact that the Government is entrusted with the power to select cases of persons falling within the group or category of substantial evaders of income-tax for reference to the Commission would not render Section 5 (1) discriminatory and void.

The object sought to be achieved by the impugned piece of legislation is quite definite and that is to catch substantial evaders of Income-tax out of those who have made huge profits during the war period. They form a class by themselves and have to be specifically treated under the procedure laid down in the Act. Being a class by themselves, the procedure to which they are subjected during the course of investigation of their case by the Commission Is not at all discriminatory because such drastic procedure has reasonable nexus with the object sought to be achieved by the Act and therefore such a classification is within the constitutional limitations,..........It was also urged that discrimination was inherent in the terms o{ Section 5(1) itself by reason of its operation being limited only to those persons whose cases were referred to the Commission on or before 16-2-1950. It thus arbitrarily left out persons who evaded payment of taxation on income made during the war period but whose cases were not discovered or referred to the commission on or before that date although they were otherwise similarly situated ........ We are of the opinion that the fixation of the date for reference; for investigation by the Government to the Commission viz., 16-2-1950 was not an attribute of the class of substantial evaders of Income-tax which were intended to be specifically treated under the drastic procedure prescribed in the Travancore Act, 14 of 1124 but was a mere accident and a measure of administrative convenience. ................

The next question to consider is whether the same class of persons dealt with under Section 5(1) of the Travancore (Investigation) Act 14 of 1124 were intended to and could be dealt with under the provisions of Section 47 of the Travancore Act 23 of 1121(which corresponded with Section 29 of the Travancore Income-tax Act, 1096 and Section 36 of the Indian Income-tax Act, 1922).

It is abundantly clear that Section 47 (I) of the Travancore Act 23 of 1121 was directed only against those persons concerning whom definite information came into the possession of the Income-tax Officer and in consequence of which the Income-tax Officer discovered that the income of those persons had escaped or been under-assessed or assessed at too low a rate ....... Turning now to Section 5(1) it will be noticed that the class of persons sought to be reached comprises only persons about whom, there was no definite information and no discovery of any definite item or items of income which escaped taxation but about whom the Government had only 'prima facie' reason to believe that they evaded payment of tax to a substantial amount.........It cannot, therefore, be urged that Section 5(1) of the Travancore Act 14 of 1124 was discriminatory in comparison with Section 47(1) of the Tnvancore Act 23 of 1121 for the persons who came under Section 5(1) were not similarly situated as persons who came under Section 47(1)........The result, therefore, is that Section 5(1) of the Travancore Act 1124 which has to be read for this purpose in juxtaposition with section 47 of the Travancore Act 23 of 1121 cannot be held to be discriminatory and violative of the fundamental right guaranteed under Article 14 of the Constitution.'

This question has therefore only to be | answered in the negative.

14. Question 5 : This relates to the onus of proof. A perusal of the report of the Investigation Commission shows that they have made an elaborate enquiry intimating the assessee of the facts appearing against him in respect of his evasion of tax and had even examined him so as to give him a full opportunity to explain the facts and circumstances brought out against him. The matter having thus been fully investigated no question of burden of proof arises at this stage. Further, the validity of the enquiry by the Commission was mooted between parties before this Court in the writ petition filed by the assessee. That having been dismissed by this Court, the order thereon concludes the question and precludes the party from reagitating it again in this reference.

15. Question 6 : The first notice of demand referred to in this question is the one D/- 1-3-1950 which, as already mentioned in paragraph 9 supra, was void and of no legal effect. No valid demand can be made by any Income-tax Officer before or without making a formal order fixing the amount payable by the assessee. An order of assessment is an essential pre-requisite for issuance of a notice of demand of income-tax. The Income-tax Officer acted ultra vires when he made a notice of demand in the absence of an order of assessment in relation thereto. When this defect came to the knowledge of the (Central) Income-tax Officers, they withdrew the invalid demand notice by their letter dated 13-6-1952 in which they have also indicated that fresh proceedings in assessment would be taken in accordance with law in due course. It is the subsequent assessment orders that are now challenged by the assessee. It follows therefore that the original demand notice, being void in law, cannot be a hurdle for a reassesment and a later issue of a valid notice of demand.

16. Question 7 : This relates to the question of limitation, Section 8 (2) of the Travancore Investigation Act quoted in paragraph 8 supra, expressly enacted that after considering the Investigation Commission's report, the Government should direct proceedings under the Travancore Income tax Act, VIII of 1096...... -be taken. .......and upon such direction being given, such proceedings might be taken 'notwithstanding any lapse of time .......,....' Thus once the matter has been referred in due time as provided in Section 5 of the Act (there is no complaint of the reference in this case being out of time), there is no limitation of time for making the assessment. Hence no question of limitation arises in this case.

17. Question 8 : The assessee has challenged the proceedings of the Investigation Commission On the ground of their being in violation of the principles of natural justice. He has urged the identical contention in his application for a writ of certiontri to cancel the report of the commission but has been defeated. He cannot now be allowed to re-agitate the matter again in this proceeding. So, question No. 8 has to be answered in the negative.

18. The questions referred for decision by this High Court are answered as indicated above. The answers being against the assessee, he will pay the costs of the Department (respondent) in this reference, including Advocate's fee Rs. 250/-.


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