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1954 DIGILAW 113 (KER)

Kasi Iyer v. Commissioner of Income-Tax

1954-07-19

M.S.MENON, SANKARAN, SUBRAMONIA.IYER

body1954
Judgment :- 1. This is a reference under S.8(5) of the Travancore Taxation on Income (Investigation Commission) Act, 1124, read with S. 113 of the Travancore Income-tax Act, 1121, by the Commissioner of Income-tax for Mysore, Travancore-Cochin and Coorg, Bangalore and the questions referred are: 1) Whether on the facts and in the circumstances of the case, there was any evidence before the Commission to come to the conclusion to which it came in its report? 2) On the facts and in the circumstances of the case was the order C. No.76 (1) IT/51 dated 25.10.1951 of the Government of India passed under the provisions of S. 8(2) of the Travancore Taxation on Income (Investigation Commission) Act read with S. 3 of the Opium and Revenue Laws (Extension of Application) Act of 1950, a legal and valid order? 3) Whether on the facts and in the circumstances of the case, the order passed by the Income-tax Officer in pursuance of the directions of the Government under S. 8(2) of the Travancore Taxation on Income (Investigation Commission) Act, 1124, was a legal and valid order? 2. The assessee, Messrs. R.S.A.C. Kasi Iyer, is a registered firm of yarn merchants consisting of four partners and the assessment year concerned is the Malayalam year 1119, the accounting period being the year ended 31.12.1118. On a scrutiny of the firm's accounts and the materials available in respect of the accounting period the Government of Travancore-Cochin were satisfied that there was a prima facie case of a substantial evasion of income-tax by the assessee and referred the case for investigation and report to the Travancore Income-tax Investigation Commission under S. 5 of the Travancore Taxation on Income (Investigation Commission) Act, 1124. Ext. A dated 6.8.1949 is the order of the Government in that behalf and Ext. F dated 1.2.1950 is the report of the Commission in which they said: "Our finding is that the secret profits earned by the assessee during 1118 is Rs. 1,31,750". 3. The Government of Travancore-Cochin accepted the report of the Commission and passed the following order, Ext. G, dated 14.12.1950: "Government have considered the report of the Income-tax Investigation Commission forwarded with letter No. 42/I.C. dated 2.2.1950 of the Chairman. 1,31,750". 3. The Government of Travancore-Cochin accepted the report of the Commission and passed the following order, Ext. G, dated 14.12.1950: "Government have considered the report of the Income-tax Investigation Commission forwarded with letter No. 42/I.C. dated 2.2.1950 of the Chairman. They accept the findings of the Commission and direct that immediate steps be taken to recover 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. The records are also returned." As pointed out in 1954 K.L.T 23 Thangalkunju Musaliar v. I.T. Officer, the Travancore Taxation on Income (Investigation Commission) Act, 1124 continued to be in force by virtue of Art. 372 (1) of the Constitution and has been amended twice, first by Act No. XXXIII of 1950, and then by Act XLIV of 1951 by the Central Legislature which on 26.1.1950 became the competent legislature as far as legislation regarding income other than agricultural income was concerned. S. 3 of the earlier of the two Central Acts, the Opium and Revenue Laws (Extension of Application) Act, 1950, provided that the continuance of the State enactment shall be subject to the following among other modification: "Any reference in the State Law, by whatever form of words, to the State Government or the State Commission shall in relation to income other than agricultural income, be construed as a reference to the Central Government or the Central Commission, as the case may be". 4. The Opium and Revenue Laws (Extension of Application) Act, 1950, received the assent of the President on 18.4.1950 i.e., some two months after Ext. G. The Government of India apparently found that the Income-tax Authorities were not following the procedure prescribed by the Travancore Taxation on Income (Investigation Commission) Act, 1124, in implementing Ext. G, and issued Ext. H, dated 25.10.1951, in which they said: "The Central Government hereby, in amplification of the order of the Government of Travancore-Cochin D. Dis. No.1100/49/RD, dated 14.2.1950, direct that appropriate assessment proceedings under the Travancore Income-tax Act (XIII of 1096) shall be taken against Messrs. R.S.A.C. Kasi Iyer with a view to assess or reassess the amount of concealed income of Rs. 1,31,750 which escaped assessment". Such a communication amplifying Ext. No.1100/49/RD, dated 14.2.1950, direct that appropriate assessment proceedings under the Travancore Income-tax Act (XIII of 1096) shall be taken against Messrs. R.S.A.C. Kasi Iyer with a view to assess or reassess the amount of concealed income of Rs. 1,31,750 which escaped assessment". Such a communication amplifying Ext. G would certainly have been within the competence of the Government of Travancore-Cochin prior to the Opium and Revenue Laws (Extension of Application) Act, 1950. In view of S. 3 of the said enactment it should also be considered as well within the competence of the Central Government after the said Act came into force, namely, on and from 18.4.1950. All that Ext. H does is to say that in carrying out the directions in Ext. G the Income-tax Authorities should follow the provisions of S. 8 of the Travancore Taxation on Income (Investigation Commission) Act, 1124, which contemplate formal assessment or re-assessment proceedings in pursuance of directions like Ext. G under sub-s. (2) of that section. 5. According to learned counsel for the petitioner, the Travancore Government disappeared from the scene on the enactment of the Central Act, No. XXXIII of 1950, and the Central Government did not by virtue of that enactment get any power to accept or reject the reports of the Travancore Income-tax Investigation Commission on which orders had not been passed by the Government of Travancore-Cochin by that date or to give further directions in respect of the reports already accepted by that Government. In other words, he postulates a legislative hiatus for which fresh legislation is the only remedy. We are unable to agree. The argument ignores the scope and effect of the modifications effected in the Travancore Taxation on Income (Investigation Commission) Act, 1124, by S. 3 of Act XXXIII of 1950 especially of the modification embodied in the extract given in paragraph 3 above. 6. It follows that Ext. G issued by the Government of Travancore-Cochin which is the basic order under S. 8(2) of the Travancore Taxation on Income (Investigation Commission) Act, 1124, and Ext. H issued by the Government of India after the Opium and Revenue Laws (Extension of Application) Act, 1950, which is nothing more than a communication calling the attention of the Income-tax Authorities to the procedure they should follow in implementing Ext. H issued by the Government of India after the Opium and Revenue Laws (Extension of Application) Act, 1950, which is nothing more than a communication calling the attention of the Income-tax Authorities to the procedure they should follow in implementing Ext. G under S. 8 of the Travancore Taxation on Income (Investigation Commission) Act, 1124, are both well within the competence of the Government concerned and that questions Nos. 2 and 3 have to be answered in the affirmative. 7. As far as question No.1 is concerned we entertain no doubts that the Income-tax Investigation Commission had sufficient evidence before them to support the conclusion they reached in the report. The concluding paragraph of the report sums up the case as follows: "Ramasubramonya Iyer's evidence on interrogation that yarn purchased according to forward contract, say at Rs. 11, which would at the relevant time be selling at Rs. 16 could not be sold for anything like Rs. 16 or 17, because they were compelled to take only a fair and reasonable profit sets the pace of this line of thought. We don't believe that the assessee sold below the prevailing market rate. The unaccounted cash debit entries in the accounts of M. Keshava Panicker and of R. Narayana Panicker and others are instances of cash receipts being shelved as a premium on sales of yarn. Nallasivan Pillai's illustrative account supported by his evidence confirm the true nature of the transactions. The result of the verification of the accounts of the sub-dealers detailed in paragraph 12 above bears out the secret profiteering at Rs. 100 per bale on an average. We have seen from Nagendran's figures (paragraph 14) that in individual cases the rate goes up to even Rs. 178 per bale, while in other cases it is checked at 145 per bale with P.S.A.S.P. Mudaliar, 93 per bale with T. Kulanthuran and 63 per bale with Nallasivan Pillai. A study of Sundara Mudaliar's account and evidence along with the influx of Harvey Mill prices has convinced us that the least percentage of profits that could have been earned by the assessee on his cost prices must have been 40% at least from January 1943. We have no doubt about this as the assessee told us during interrogation that even Re.1 per bundle about the prevailing mill rate "sometimes recorded a profit of even 50% on the purchase price". We have no doubt about this as the assessee told us during interrogation that even Re.1 per bundle about the prevailing mill rate "sometimes recorded a profit of even 50% on the purchase price". The recorded profit according to return works out at 28% on the total cost price. Striking a modest average of 35% on the total cost price of Rs. 17,34,293 the secret profits would be 7% or Rs. 1,21,400. We have seen from the averages calculated on the differences on the four main dealers (paragraph 16) that Rs. 119 secret profit on a bale is not over much. We take one half of the total number of bales sold in the two main branches as the approximate number on which secret profits may be taken to have been recovered. That would 1371/2 bales. The total of secret profits at the above rate of Rs. 119 per bale would be Rs. 1,56,7821/2. In the circumstances however we think it would not be unreasonable to accept the Deputy Commissioner's basis of Rs. 100 secret profits per bale sold, and though on the figures we have calculated the percentage of such sales as 65 of the total, we are satisfied that a reckoning of 50% (or 1,3171/2 bales) would be reasonable and fair. Our finding is that the secret profits earned by the assessee during 1118 is Rs. 1,31,750." Whether another conclusion is possible on the evidence or whether we may adopt a different view on the materials available is not the question for determination. The question is: "Whether on the facts and in the circumstances of the case, there was any evidence before the commission to come to the conclusion to which it came in its report." and the answer must certainly be in the affirmative. 8. We answer the reference accordingly. The costs shall be paid by the assessee, advocate's fee Rs. 150/-.