K.T. Desai, C.J.
1. This is a reference under section 66(2) of the Indian Income-tax Act, 1922. The reference relates to a notice issued under section 34(1)(b) of the Act against the assessee. The assessment year with which are concerned is the year 1949-50, the accounting year being the calendar year 1949. The assessee is a company registered in the former Baroda State having its registered office at Baroda. Prior to the merger of the State of Baroda with the State of Bombay, the assessee was being assessed as a non-resident by the Income-tax Officer at Bombay. On 22nd July, 1949, the assessee in the usual course submitted a return of income under section 22(2) to the Income-tax Officer at Bombay for the assessment year 1949-50. On 1st August, 1949, the territories of the State of Baroda were merged with the territories of the State of Bombay. On 22nd August, 1949, the Taxation Laws (Extension to Merged States and Amendment) Ordinance (XXI of 1949) was passed whereby the Indian Income-tax Act, 1922, and all the rules and orders made thereunder, which were in force immediately before the commencement of the Ordiance, were extended to all the merged states including the former state of Baroda. The Ordinance also introduced section 60A in the Indian Income-tax Act, 1922. Section 60A provided that if the Central Government considered it necessary to expedient so to do for avoiding any hardship or anomaly, or removing any difficulty that may arise as a result of the extension of the Income-tax Act to the Merged States, the Central Government may, by general or special order, make an exemption, reduction in rate or other modification in respect of income-tax in favour of any class of income, or in regard to the whole or any part of any class of income, or in regard to the whole or any part of the income of any person or class of persons. On 3rd December, 1949, in exercise of the powers conferred under section 60A, the Central Government promulgated the Merged States (Taxation Concessions) Order, 1949. Broadly stated, under that order the income accruing or arising in the merged state was liable to be taxed at certain concessional rates. On 31st December, 1949, the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, was passed replacing the provisions of the Taxation Laws (Extension to Merged States and Amendment) Ordinance, 1949, in almost the same terms. After the merger of the territories of the State of Baroda with those of Bombay, the Income-tax Officer at Baroda issued a notice on the assessee as a resident requiring the assessee to file a return. The said notice was issued under section 22(2) of the Indian Income-tax Act, 1922. On 16th January, 1950, the assessee filed a return. On 21st January, 1950, the Income-tax Officer issued a notice under section 22(4) requiring the assessee to produce certain documents on 22nd February, 1950. On 22nd February, 1950, the assessee found that the Income-tax officer was proceeding to make an assessment in respect of the entire income of the assessee at the rate prevailing in British India. Thereupon, on 24th February, 1950, Messrs. C. C. Chokshi and Company, accountants representing the assessee, addressed a letter to the Income-tax Officer stating that during the assessment proceedings it transpired that the Income-tax Officer was proposing to assess the assessee at the Indian Union income-tax rates and did not propose to give the assessee the benefit of the Merged States (Taxation Concessions) Order, 1949, passed by the Government of India under section 60A of the Government of India Income-tax Act. The assessee by the letter claimed the benefits of the provisions of the Merged States (Taxation Concessions) Order, 1949. On 28th February, 1950, the Income-tax Officer passed an order of assessment whereunder he taxed the income of the assessee at the Indian Union income-tax rates. At the end of his order, he stated as under :
'No rebate is to be allowed under section 60A : vide provision of the Merged States (Taxation Concessions) Order of 1949.'
2. On the same day he addressed a letter to the assessee which is referred to in paragraph 3 of the statement of case. A copy of the said letter had by mutual consent been exhibited in this reference as exhibit 'A'. By that letter the Income-tax Officer sent two challans to the assessee. He stated that the first challan corresponded to the tax due approximately according to Baroda rates of taxes while the second challan represented the difference between the Indian rates of tax and the Baroda rate of tax. He observed that the assessee was not entitled to any concession for the assessment year 1949-50 under the provisions of the Merged States (Taxation Concessions) Order, 1949. He further observed that the Federation of Industries, Baroda, had approached the authorities concerned to give their decision in connection with matters of the types which had arisen in the case of the assessee and he requested the assessee to withhold payment due according to the second challan until the assessee heard form the Income-tax Officer. On the 11th March, 1950, the Central Government added clause 6A to the Merged States (Taxation Concessions) Order, 1949, whereunder it was provided that the income, profits and gains of any previous year, referred to in paragraph 5 or 6 of that order, which accrued or arose without the taxable territories to a person who was resident but who would not be a resident in the taxable territories if the Act had not been passed, would be charged to tax in the same manner and to the same extent as specified in paragraph 5 or 6, as the case may be. The effect of this amendment was to clear all doubts that might have been occasioned whilst interpreting the provisions of the Merged States (Taxation Concessions) Order, 1949, and to lay down on clear terms that the case of persons who are liable to be regarded as resident by reason of the provisions of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949. They would for the period provided in the Merged States (Taxation Concessions) Order, 1949, be liable to tax in respect of the income which accrues within the territories of the merged States at the rate prevailing in the Merged States immediately prior to the coming into force of the Act. The assessee on 29th March, 1950, preferred an appeal against the order of the Income-tax Officer before the Appellate Assistant Commissioner contending, inter alia, that the Income-tax Officer had erred in not applying the provisions of the Merged States (Taxation Concessions) Order, 1949. On 25th April, 1950, the Income-tax officer addressed a letter to the assessee for the purpose of rectification of the order passed by him on 28th February, 1950. In that letter he has stated as follows :
'To enable this office to give effect to the provisions of the Merged States (Taxation Concessions) Order of 1949, dated the 3rd December, 1949, as amended by Notification No. 22 (4)-IT/49, dated the 11th March, 1950, in respect of the already completed assessment for 1949-50, you are hereby requested to please attend the office of the Income-tax Officer, Ward A, Baroda, on May 3, 1950, at 11.00 a.m. with the following information :
'(a) Sales effected to (former) British Indian merchants and amounts collected in respect thereof, either by your agent or on behalf or by you in (former) British India.
(b) Sale proceeds received through (former) British Indian banks (i.e., R.R. through banks).
(c) (i) Sale proceeds collected by you by collecting cheques on British Indian banks and hundies on British Indian shroffs and merchants...'
On 21st May, 1950, the assessee sent a reply furnishing the details as under :
'(a) In the year 1948, we had not sold any goods to merchants in British India excepting art silk cloth for Rs. 2,05,610 (Rupees two lakhs five thousand six hundred and ten only.). We had no agent in British India. Excepting this, every sale was made in Baroda ex-mill delivery basis, and payments were received in Baroda.
(c) (i) Whatever cheques were received by us on British Indian banks were sold by us to the bank of Baroda Ltd., Baroda, and immediate credit was given to us. Hence, no collection was made by us by collecting cheques on British Indian banks.'
3. On receipt of this information, the Income-tax officer in the purported exercise of his powers under section 35 issued an order of rectification on 27th July, 1950. After making the requisite adjustments, a net refund of Rs. 9,817-14-0 was found due to the assessee. On 12th December, 1950, the Income-tax Officer sought the sanction of the Commissioner for taking proceedings under section 34 of the Indian Income-tax Act, 1922. In the proposal for reopening the assessment, he has stated as under :
'(1) Full relief at Baroda rates was given under section 60A order at the original stage. However, as the Indian Union rates are to be charged regarding income accruing, arising or deemed to accrue, arise or received in the Indian Union, assessment is required to be reopened under section 34 for the assessment year 1949-50.
(2) As per the Tribunal's decision in the case of Sidhpur Mills Ltd., Sidhpur, interest on securities received from the Accountant-General, Baroda, is to be considered as the income accruing to the Accountant-General's E.P.T. fund as such credit given for tax deducted at source from such interest on securities from the Accountant-General is to be claimed back.'
4. Clause (2) relates to a matter to which we will advert subsequently. After obtaining the requisite sanction the Income-tax officer reopened the assessment under section 34(1)(b) by his notice dated 9th February, 1951. In view of the fact that the provisions of the Merged States (Taxation Concessions) Order, 1949, had been applied in the case of the assessee, the assessee on 20th February, 1953, withdrew one of, the grounds of appeal before the Appellate Assistant commissioner whereby the assessee had contended that the Income-tax Officer had erred in not applying the provisions of the Merged States (Taxation Concessions) Order, 1949, to the assessee. On 21st December, 1953, the appeal before the Appellate Assistant Commissioner was disposed of. On 24th March, 1954, assessment order was made by the Income-tax Officer acting under the provisions contained in section 34. Under that order he held that the sale proceeds to the tune of Rs. 21,27,293 which represented the sale proceeds received by cheques on British Indian banks were received by the assessee in the taxable territories and profits relating thereto were taxable at the Indian Union rates. The assessee preferred an appeal against the order of assessment passed as aforesaid before the Appellate Assistant Commissioner. When the appeal reached hearing, the assessee sought permission to add an additional ground of appeal urging that the proceedings initiated under section 34 by the Income-tax Officer were void as no new information had come to his notice so as to enable him to start proceedings under section 34(1)(b). The Appellate Assistant Commissioner permitted the assessee to urge that ground and ultimately held in favour of the assessee on that ground. The matter was carried further before the Income-tax Appellate Tribunal. The Tribunal on 3rd April, 1957, reversed the order of the Appellate Assistant Commissioner and came to the conclusion that the Income-tax Officer was entitled to take proceedings under section 34. The assessee applied to the tribunal under section 66 of the Indian Income-tax Act, 1922, to refer a question of law arising out of the order of the Tribunal for decision by the High Court, the question of law being :
'Whether on the facts and in the circumstances of the case the Income-tax Officer was right in making a reassessment under section 34(1)(b) ?'
5. As the Tribunal did not accede to the request of the assessee, an application was made to the Bombay High Court which by its order dated 3rd November, 1958, directed the Tribunal to refer the question for decision by the High Court. Accordingly, a reference has been made and the aforesaid question has been referred to this court.
6. The question that arises for consideration is whether the provision of section 34(1)(b) were satisfied in this case so as to entitle the Income-tax Officer to take proceedings thereunder. Section 34(1)(b), in so far as it is material, at the relevant time provided as under :
'34. (1) If - .... (b).... the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate.... he may... at any time within four years of the end of that year, serve on the assessee, or if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains... and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.'
7. The provisions of section 34(1)(b), therefore, could only be invoked of the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment or have been under-assessed, or assessed at too low a rate. From the facts before us it is clear that at the time when the original order of assessment was passed by the Income-tax Officer on 28th February, 1950, he had information about the receipt by the assessee of any income in the former Indian Union. At the date when the passed the order under section 35 he had in his possession information supplied by the assessee company itself on 21st May, 1950, which showed Rs. 2,05,610 had been received by the assessee during the accounting year in respect of art silk cloth sold to merchants in the territories of the Indian Union. If the original order dated 28th February, 1950, had stood by itself, the assessee had been assessed to tax at the higher rates prevailing in the Indian Union and it was not possible to say that any income had then escaped assessment or had been under-assessed or assessed at too low a rate and it was not possible for the Income-tax Officer to invoke the provisions of section 34. The right to invoke the provisions of section 34 is said to arise by virtue of the rectification order passed on 27th July, 1950. As a result of that order of rectification, the total income of the assessee has been assessed at rates prevailing in the former Baroda State. Some part of the income was of such a nature that the rates applicable hereto were the rates prevailing in the Indian Union. It is as a result of the order of rectification that the Income-tax Officer has put himself in a position to say that some part of the income of the assessee has been assessed at too low a rate. At the time when the order of rectification was passed under section 35, the Income-tax Officer had in his possession information which would give him reason to believe that at least a part of the income of the assessee was income to which the provisions of the Merged States (Taxation Concessions) Order, 1949, did not extend and that the assessee in respect thereof was liable to be taxed at the rates prevailing in the Indian Union. It has been strongly urged on behalf of the assessee that the Income-tax Officer being in possession of such information cannot exercise his power under section 35 and at the same time seek to alter what he was doing under section 35 by taking action under the provisions contained in section 34. At the time when the Income-tax Officer took action under section 35 he had information which enabled him to know that by reason of the very action which he was taking under section 35 he would be creating a situation whereunder the assessee could be said to have been assessed at too low a rate in respect of some of the income of the assessee. The Income-tax Officer had no right to take proceedings under section 34 if the Income-tax Officer's original order had stood by itself. The Income-tax Officer seeks to acquire that right by virtue of the order passed by him under section 35 when at the time when he passed that order, he had the requisite information. It has been forcefully urged by the learned Advocate-General appearing on behalf of the commissioner that the effect of an order under section 35 is that the original order of assessment itself is altered with effect from the date of the original order and that the order of rectification must be deemed to be an integral part of the original order and that the original order cannot be read de hors the order of rectification and that if the original order of 28th February, 1950, is to read, the Income-tax Officer would have jurisdiction to proceed under section 34, if on the date when he passed the order of 28th February, 1950, he did not possess the requisite information. An order of rectification can be made in the event of the provisions of section 35 being satisfied. The material part of the said provisions to the extent that they are relevant provided as under :
'35. .... the Income-tax Officer may, at any time within four years from the date of any assessment order... passed by him on his own motion rectify any mistake apparent from the record of the assessment.... and shall within the like period rectify any such mistake which has been brought to his notice by an assessee : Provided that no such rectification shall be made, having the effect of enhancing an assessment... unless the....Income-tax Officer.. has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard.'
8. In order that the Income-tax Officer may be entitled to take proceedings under this section, there must be a mistake which is apparent from the record of the assessment. Reference was made to several authorities on the point but it is not necessary for the purpose of deciding the matter in controversy before us to refer to the same. There is no doubt that when the Income-tax Officer sought to take action under section 35 there was mistake apparent from the record. Under the provisions of section 35 the Income-tax Officer is not entitled for the purpose of rectifying any mistake to launch upon a fresh inquiry or investigations with a view to gather new material. In the present case the Income-tax Officer before he could give the correct relief to the assessee would have to find out in the first instance the extent to which relief was liable to be given. The Income-tax Officer having come to the conclusion that effect had wrongly at been given to the provisions of the Merged States (Taxation Concessions) Order, 1949, effect had to be given to the said provisions only in respect of the income which had accrued or arisen in the territories of the former State of Baroda. The provisions of the order were not applicable to income which had accrued or arisen in the territories of the Union of India. The Income-tax Officer had information in his possession which showed that a part of the income of the assessee could be said to have accrued or arisen in the territories of the Union of India. In that state of affairs it was not possible for him when taking action under section 35 to rectify the mistake which was apparent from the record so as to give apt and appropriate relief. The Income-tax officer finding himself in that position has sought to exercise his powers both under section 35 as well as section 34. He knowingly passed an order under section 35 which alone could give him the right to take action under section 34. A very peculiar situation has thus arisen in the present case. The Income-tax officer purporting t act under section 35 knowingly passes an order whereunder some income of necessity must be assessed at too low a rate and thereafter seeks to alter the situation by taking action under section 34. It may be that what the Income-tax Officer has sought to do is in consonance with substantial justice. What we have to consider, however, is whether the action of the Income-tax officer is in consonance with law. It has been urged by the learned Advocate-General that the order of the Income-tax Officer passed under section 35 relates back to the order of assessment dated 28th February, 1950, and as the order relates back to that date, we have only to consider the state of knowledge of the Income-tax Officer as on 28th February, 1950. We find considerable difficulty in accepting this argument. The information which is relief upon for the purpose of taking action under section 34(1)(b) was available to the Income-tax Officer and it cannot, therefore, be said that after the assessee was under assessed he obtained any information in consequence of which he had reason to believe that such under-assessment had taken place. If he had such information before under-assessment, he cannot rely on such information for taking action under section 34(1)(b). An order of rectification has no doubt no independent existence; it rectifies the original order and it cannot exist apart from the original order, but it has this effect that, once it is made the original assessment order is rectified and that precisely is the assessment order as rectified by the order of rectification. It is the order rectified by the order of rectification which effects the final quantification of the tax liability. If the rectified order suffered from any of the defects set out in section 34(1)(b), the information which gives the Income-tax Officer reason to so believe, must necessarily be subsequent to the rectified order, i.e., subsequent to the assessment order as rectified by the order of rectification. The information must be subsequent to the order of rectification for it is that which rectifies the assessment order and effects the final quantification of tax liability. Before the order of rectification there was no under-assessment. Such under-assessment came into existence because of the order of rectification and, therefore, the information must be subsequent information and the Income-tax Officer had no right to take action under section 34(1)(b).
9. As regards the second ground on which the Income-tax Officer had sought to take proceedings under section 34, the same has not been pressed before us by the learned Advocate-General and it is not necessary for us to consider the same.
10. In the result, we have to hold that, on the facts and in the circumstances of the case, the Income-tax Officer was not right in making a reassessment under section 34(1)(b) and we answer the question in the negative. We order that the respondent do pay the assessee, costs of the reference.
11. Question answered in the negative.