TMI Blog1962 (11) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... ereby 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roda 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tish 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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