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1958 Supreme(SC) 71
SUPREME COURT OF INDIA
S.R.Das, C.J.I. A.K.Sarkar, S.K.Das, T.L.Venkatarama Ayyar, Vivian Bose, JJ.
A.N.Lakshman Shenoy: Income Tax Officer, Bangalore: Income Tax Officer, Bangalore
Versus
Income Tax Officer, Ernakulam: City Tobacco Mart ; K.Venkataswamy, Moola Rangappa: Dhondusa, Dhaktappa And Pros.K.N.Guruswamy
Case No. : 143 , 145 of 1954,27 , 30 of 1956,161-164 of 1956
Date of Decision : 4/28/58
Advocates Appeared: Bahadur Sardar : Chaudhuri K.R. : Dhebar R.H. : Gopalakrishnan G. : Issac M.U. : Iyengar K.S.Krishnaswamy : Iyer R.Ganapathy : Sanyal H.N. : Sastri A.V.Vishwanatha
A.V.VISHWANATHA SASTRI, G.GOPALAKRISHNAN, H.N.SANYAL, K.R.CHAUDHARY, K.S.KRISHNASWAMI AIYANGAR, M.U.ISSAC, R.Ganapathy Iyer, R.H.Dhebar, SARDAR BAHADUR SAHARYA
The term "assessment" in Section 13(1) of the Finance Act, 1950, is used in a comprehensive sense, including "re-assessment" under pre-existing State laws, as it encompasses the entire process of ascertaining, demanding, and realizing tax.
Headnote:(A) Finance Act, 1950 - Section 13(1) - Indian Income-tax Act, 1922 - Section 34 - State Income-tax Acts - Re-assessment - Interpretation of "assessment" - The expression "levy, assessment and collection of income-tax" in Section 13(1) of the Finance Act, 1950, must be understood in a comprehensive sense, encompassing the entire process by which tax is ascertained, demanded, and realized, and therefore includes "re-assessment" under the pre-existing State laws. (Paras 14, 15, 16)
(B) Re-assessment - "Definite information" - For the purpose of initiating re-assessment, "definite information" must be more than mere guess, gossip, or rumour, but it does not require a conclusion of certainty at the stage of issuing the notice; an honest belief based on materials that reasonably support such belief is sufficient. (Para 9)
(C) Constitution of India - Articles 278 and 295 - Financial agreements between the Union and States - Recommendations regarding the continuity of proceedings arising out of pre-existing State Acts support the validity of re-assessment proceedings under those Acts. (Para 18)
Facts of the case:
Assessees were previously assessed under various State Income-tax Acts. Following the integration of these States into the Union and the enactment of the Finance Act, 1950, tax authorities issued notices for re-assessment under the pre-existing State Acts, alleging that income had escaped assessment or been under-assessed. The assessees challenged the jurisdiction of the authorities, arguing that the term "assessment" in the Finance Act, 1950, did not include "re-assessment" and that such proceedings were barred by the integration process and subsequent financial agreements.
Findings of Court:
The court found that the term "assessment" in the context of the Finance Act, 1950, is used comprehensively. The collocation of "levy, assessment and collection" indicates the entire process of taxation. Furthermore, the financial agreements and recommendations for federal financial integration intended to ensure the continuity of proceedings arising out of pre-existing State legislation, which includes re-assessment proceedings.
Issues: Whether the expression "levy, assessment and collection of income-tax" in Section 13(1) of the Finance Act, 1950, includes the power of "re-assessment" under the pre-existing State Income-tax Acts.
Ratio Decidendi: The court ruled that "assessment" must be interpreted based on context. In the Finance Act, 1950, it refers to the whole procedure for imposing liability. Distinguishing between original assessment and re-assessment would lead to an absurd result where those who totally escaped assessment are taxable but those under-assessed are not. Re-assessment is a proceeding "arising out of" the pre-existing State Acts and is thus saved by the Finance Act.
Result: The appeals from the first group of States were dismissed with costs, and the appeals from the second group of States were allowed, and the judgment and orders of the High Court were set aside.
S.K.DAS, J.
(1) THIS judgment relates to and governs eleven appeals which for convenience have been classified into two groups. The first group may be called the group of Travancore-Cochin appeals, and within this group fall Civil Appeals Nos. 143 to 145 of 1954. The, second group may be called the group of Mysore appeals and within this group are eight appeals, namely, Civil Appeals Nos. 27 to 30 of 1956 and 161 to 164 of 1956. By reason of the circumstance that certain common questions of law and fact arise in all these eleven appeals, they have been heard one after the other; but it will be convenient and will avoid confusion if we state the facts relating to the Travancore-Cochin group first and then deal with the questions arising therefrom. We shall then state the additional facts of the Mysore group of appeals, and answer the questions arising therefrom, in so far only as they have not been answered already in relation to the Travancore-Cochin group. It may be here added that in the Travancore-Cochin appeals (Civil Appeals 143 to 145 of 1954) the appellant is the assessee, A. N. Lakshmana Shenoy, of Messrs. New Guna Shenoy Company, Ernakulam, and the two respondents are the Income-tax Officers of Ernakulam in Cochin and of Kottayam in Travancore. In the other group of appeals, namely, the Mysore appeals, the appellants are the Income-tax Officers of certain income-tax circles in Bangalore and the respondents are assessees who carry on business within the jurisdictional area of the said Incometax Officers. In the Travancore Cochin appeals, the High court of Travancore-Cochin came to a decision against the assessee, while in the Mysore appeals the High court of Mysore came to an opposite conclusion on identical questions of law; that is why in the first group of appeals the assessee is the appellant and in the second group the appellants are the Income-tax Officers.
(2) TRAVANCORE-COCHIN appeals: We proceed now to deal with the Travancore-Cochin appeals. The assessee, A. N. Lakshmana Shenoy, is a hardware merchant who carried on his trade and business for several years in the then States of Travancore and Cochin, with his headquarters at Ernakulam in Cochin. He was assessed to income-tax in both the States under the income-tax law in force there, namely, the Cochin Income-tax Act of 1117 M. E. (hereinafter referred to as the Cochin Act) and the Travancore Income-tax Act of 1121 M. E. (hereinafter referred to as the Travancore Act). He was so assessed by the Incometax Officer at Ernakulam for the Cochin State and the Income-tax Officer at Kottayam for the Travancore State. It is a matter of history that Cochin and Travancore were formerly independent States, and till the lapse of paramountcy, the Crown as represented by and operating through the political authorities provided the nexus between those States and the central Indian government. The Indian Independence Act, 1947, released the States from their obligation to the Crown; but in August, 1947, the Rulers of the two States acceded to the Dominion of India. This was followed by a process of two-fold integration-the consolidation of the States into sizeable administrative units and their democratisation. On 27/05/1949, the Rulers entered into a covenant which was concurred in by the government of India. By that covenant the Rulers agreed that as from the first day of July, 1949, the States of Travancore and Cochin should be united in and form one State with a common executive, legislature and judiciary by the name of the United State of Travancore and Cochin. The covenant further provided that ` there shall be a Rajpramukh for the United State and the Ruler of Travancore shall be the first Rajpramukh; the executive authority of the United State shall be exercised by the Rajpramukh and there shall be a council of ministers to aid and advise him `. Article IX of the covenant said that ` the Rajpramukh shall within a fortnight of the appointed day execute on beh
