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Commissioner Of Income-Tax, Gujarat Iii v. Maneklal Harilal Spg. & Mfg. Co. Ltd.

Gujarat High Court

Nov 24, 1975

Judgment

Subsequent
References

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Summary of the Opinion

Factual and Procedural Background

This matter concerns the assessment year 1961-62 (previous year calendar year 1960). The assessee is a limited company operating a textile mill. The original assessment for 1961-62 was completed on 16 June 1962. Subsequently the Income-tax Officer (I.T.O.) noticed two matters which he considered had escaped assessment: (a) rebate on account of corporation tax not withdrawn to the extent of Rs. 42,300 (later described as Rs. 48,300 in the reassessment), and (b) profit under section 10(2)(vii) of the Indian Income-tax Act, 1922, to the extent of Rs. 38,465.

The I.T.O. had already initiated action under section 147 (notice issued u/s. 148 on 28 March 1964) in relation to withdrawal of development rebate that was thought to have been inadvertently allowed on machinery items (specifically "warp stop motions" worth Rs. 38,015). On 24 April 1964 the Supreme Court decided Commissioner of Income-tax v. Mir Mohamed Ali ([1964] 53 ITR 165 (SC)), holding that development rebate was admissible on parts of machines as well. By the time reassessment proceedings were heard, that issue (development rebate on warp stop motions) had been decided in favour of the assessee.

Despite that, in reassessment proceedings the I.T.O. brought to tax the two other items (corporation tax rebate and the profit under section 10(2)(vii)). The Appellate Assistant Commissioner upheld the I.T.O.'s reassessment. Before the Income-tax Tribunal the assessee argued that because the foundational basis for reopening (the development rebate issue) had vanished after the Supreme Court decision, the I.T.O. could not reassess other items or withdraw excessive relief; the Tribunal accepted that argument, held the reassessment under section 147 to be bad in law and cancelled the proceedings. At the instance of the revenue the Tribunal referred two questions of law to the High Court for opinion.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that since the foundation on which the reassessment proceedings were based had vanished, the Income-tax Officer could not bring into assessment some other items of income or withdraw excessive relief by way of tax allowed at the time of the original assessment in the reassessment proceedings?
Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the reassessment proceedings initiated under section 147 of the Act were bad in law?

Arguments of the Parties

Assessee's Arguments (as presented by the Advocate-General)

The initiation of reassessment proceedings was invalid because the legal foundation for the I.T.O.'s belief (that development rebate on warp stop motions was wrongly allowed) did not exist in law, in view of the Supreme Court's decision in Mir Mohammad Ali ([1964] 53 ITR 165 (SC)).
Information consisting only of a point of law (i.e., an interpretation that later proved to be incorrect) cannot constitute valid information for reopening; the I.T.O.'s belief was therefore based on an incorrect legal premise and could not be a reasonable belief that would justify initiation of reassessment.
The reason for the belief must not only exist at the time the notice is issued but must continue to exist until the final order in the reassessment is passed; since the Supreme Court decision was delivered before the reassessment was heard, the foundational reason had disappeared and the reassessment could not validly proceed on other items.
Relied upon observations in Chhugamal Rajpal v. S. P. Chaliha, Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax and Shriyans Prasad Jain v. R. K. Bhalla (Bom.) to support the proposition that the reason for belief must have continuing force.

Revenue's Arguments

This information was not available in the provided opinion.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner of Income-tax v. Mir Mohamed Ali [1964] 53 ITR 165 (SC)	Held that development rebate was admissible on parts of machines as well as on complete machines.	The Supreme Court decision meant that the particular development rebate issue (warp stop motions) was decided in favour of the assessee; the Court considered the timing of this decision in relation to the initiation of reassessment proceedings.
V. Jaganmohan Rao v. Commissioner of Income-tax [1970] 75 ITR 373 (SC)	Interpreted section (section 34 of 1922 Act, identical to section 147 of 1961 Act): once reassessment proceedings are validly initiated the I.T.O. may reassess all income that has escaped assessment; the previous assessment is set aside and the whole assessment starts afresh; the I.T.O. has a duty to levy tax on the entire escaped income.	The Court treated this as the controlling authority for the scope of powers in reassessment proceedings and applied it to hold that once proceedings were validly initiated the I.T.O. could bring into assessment other escaped items, not being confined to the initial item.
AL.VR.ST. Veerappa Chettiar v. Commissioner of Income-tax [1973] 91 ITR 116 (Mad)	Summarized the position that when reassessment proceedings are validly initiated the jurisdiction to reassess extends to all items of income which have escaped assessment and are not confined to the items in respect of which notice was issued.	The Court cited this summary as correctly stating the law on the scope of reassessment jurisdiction.
Controller of Estate Duty v. N. A. Merchant [1975] 101 ITR 270 (Guj)	Held that the Madras High Court's decision in AL.VR.ST. Veerappa Chettiar correctly summarizes the legal position regarding reassessment powers.	The Court recorded its own prior endorsement of the Madras High Court summary and treated it as supportive authority for the broad reassessment powers of the I.T.O.
Poonjabhai Vanmalidas & Sons v. Commissioner of Income-tax [1974] 95 ITR 251 (Guj) [Full Bench]	Summarized that reasonable grounds to believe non-disclosure of material facts suffice to give jurisdiction to issue notice; challenges to initiation are limited to whether belief was held and whether it was held in good faith (not a pretence).	The Court relied on this Full Bench summary to explain the limited scope of judicial review of initiation and to support the proposition that if reasonable grounds existed at the time of initiation the notice was valid.
Sowdagar Ahmed Khan v. Income-tax Officer [1968] 70 ITR 79 (SC)	Confirmed that if there is material before the I.T.O. to form a prima facie belief of omission of disclosure leading to escaped assessment, the I.T.O. has jurisdiction to issue notices.	The Court used this case to support the proposition that the existence of material giving rise to a prima facie belief justifies initiation of reassessment proceedings.
Calcutta Discount Co. Ltd. v. Income-tax Officer [1961] 41 ITR 191 (SC)	Identified as an important Supreme Court decision whose principles were elaborated upon in subsequent decisions concerning reassessment powers.	The Court observed that later Supreme Court and High Court decisions explained the implications of Calcutta Discount Co.'s case; it provided historical context for the development of reassessment jurisprudence.
S. A. L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149 (SC)	Involved a case where retrospective legislative amendment affected exercise of discretion; used to illustrate a different situation involving retrospective effect by legislation.	The Court distinguished that case from the present facts, holding that a Supreme Court declaration of law cannot be equated with retrospective legislation and its legal fiction; therefore S.A.L. Narayan Row was not applicable.
Chhugamal Rajpal v. S. P. Chaliha [1971] 79 ITR 603 (SC); Sheo Nath Singh v. Appellate Assistant Commissioner [1971] 82 ITR 147 (SC); Shriyans Prasad Jain v. R. K. Bhalla [1974] 94 ITR 34 (Bom)	These cases were relied upon by the Advocate-General for the proposition that the reason for the I.T.O.'s belief must continue to exist until the final order in reassessment is passed (aspects of continuity of reason for belief were invoked).	The Court noted the Advocate-General's reliance on these observations but rejected the submission that the subsequent Supreme Court decision (Mir Mohammad Ali) rendered the initiation invalid; the Court did not accept that the reason for the belief had to survive subsequent judicial development of law so as to invalidate initiation that was valid when made.

Court's Reasoning and Analysis

The Court reconstructed the factual chronology and then examined the legal question of whether initiation of reassessment must be judged solely by whether the foundational belief continued to exist at the time of final reassessment, or whether validity is determined by the state of affairs at the precise moment the notice was issued.

Key analytical steps the Court took (as stated in the opinion):

It observed that on 28 March 1964 the I.T.O. recorded reasons for reopening: that development rebate on "warp stop motions" (valued at Rs. 38,015) was inadvertently allowed, and issued notice under section 148 on that footing. At that time the view prevalent (based on prior decisions, particularly of the Bombay High Court) was that development rebate was allowable only on a complete machine and not on parts; warp stop motions were viewed as a part and not a complete machine.
On 24 April 1964 the Supreme Court decided Mir Mohammad Ali, holding that development rebate is admissible on parts. By the time the reassessment proceedings were heard, the issue of development rebate on parts had been decided in favour of the assessee.
The Court then reviewed the settled law on scope of reassessment powers, principally relying on V. Jaganmohan Rao v. CIT where the Supreme Court held that once proceedings under the corresponding provision (section 34 of 1922 Act, identical in terms to section 147 of 1961 Act) were validly initiated, the I.T.O.'s jurisdiction to reassess was not confined to the item that prompted reopening; rather the whole assessment stood open and the I.T.O. could reassess all income that had escaped assessment.
The Court further relied on Full Bench and High Court decisions (including Poonjabhai Vanmalidas & Sons and AL.VR.ST. Veerappa Chettiar) summarizing the law that reasonable grounds for belief of non-disclosure are sufficient to confer jurisdiction to issue a notice and that judicial interference with initiation is limited to whether the belief actually existed and whether it was held in good faith.
The Court addressed the Advocate-General's contention that the reason for belief must have continuing application until the reassessment order and that information based on an incorrect point of law cannot be information at all. The Court rejected this contention: it held that validity of initiation must be assessed as of the moment of initiation. At that moment, given the prevailing legal position, it was open to the I.T.O. to initiate proceedings; a subsequent judicial pronouncement inimical to the reason relied upon does not retrospectively render initiation invalid.
The Court distinguished cases involving retrospective legislation and legal fictions (for example S. A. L. Narayan Row) from a Supreme Court declaration of what the law always was; the latter cannot be equated with retrospective statutory amendment for purposes of invalidating initiation of proceedings which were valid when taken.
Concluding from the above authorities and reasoning, the Court held that once reassessment proceedings were validly initiated the I.T.O. had jurisdiction and indeed the duty to include in reassessment other items of income which had escaped assessment; therefore the I.T.O. was entitled to bring the corporation tax rebate and the profit under section 10(2)(vii) to tax in the reassessment.

Holding and Implications

Holding: The Court answered both questions referred by the Tribunal in the negative. The Tribunal erred in holding that the reassessment proceedings were bad in law because the foundational reason for initiation had subsequently vanished. The Court held that the reassessment proceedings were validly initiated and that the I.T.O. had jurisdiction to reassess other escaped items of income.

Core Ruling: The questions referred were answered in the negative (i.e., the reassessment was valid and the I.T.O. could bring other escaped income to tax).

Direct consequences: The Tribunal's cancellation of the reassessment proceedings was set aside in favour of the revenue; the I.T.O. was validly entitled to bring into assessment the corporation tax rebate and the profit under section 10(2)(vii) which had escaped assessment. The assessee was ordered to pay the costs of the reference to the Commissioner.

Broader implications: The opinion applies and affirms established precedents about the scope of reassessment (notably V. Jaganmohan Rao and Full Bench and High Court summaries) but the judgment does not purport to set a new precedent beyond applying those authorities to the facts. The Court expressly distinguished situations involving retrospective statutory amendments from a subsequent judicial declaration of the law.

End of summary based exclusively on the provided opinion.

Show all summary ...

1. In this case at the instance of the revenue the following two question have been referred to us by the Tribunal :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law, in holding that the foundation on which the reassessment proceedings were based having vanished, the Income-tax Officer could not bring in the assessment some other items of income or withdraw excessive relief by way of tax allowed at the time of the original assessment, in the reassessment proceedings ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the reassessment proceedings initiated under section 147 of the Act were bad in law ?"

2. In the instant case we are concerned with the assessment year 1961-62, the relevant previous year being the calendar year 1960. The assessee is a limited company running a textile mill. The original assessment of this company for the assessment year 1961-62 was completed on June 16, 1962. Thereafter, it came to the notice of the Income-tax Officer, firstly, that rebate on account of corporation tax had not been withdrawn to the extent of Rs. 42,300 and secondly, that the profit under section 10(2)(vii) of the Indian Income-tax Act, 1922, to the extent of Rs. 38,465 had escaped assessment. The Income-tax Officer also noticed the action under section 147 of the Income-tax Act, 1961, had already been initiated in the case of the assessee in connection with the assessment year 1961-62 as regards withdrawal of development rebate in connection with some other items on which development rebate had been inadvertently allowed. Notice under section 147 was thus already issued by the Income-tax Officer on March 28, 1964. On April 24, 1964, the Supreme Court decided the question regarding the particular aspect of development rebate which was the crucial question in the instant case. The decision was in Commissioner of Income-tax v. Mir Mohamed Ali [1964] 53 ITR 165 (SC). Hence, by the time the reassessment proceedings were heard, the development rebate regarding which the notice under section 148 for initiating reassessment proceedings was issued, was no longer withdrawn by the revenue and, so far as that particular topic was concerned, the matter was bound to be decide in favour of the assessee. However, so far as the rebate on account of corporation tax was concerned and so far as the profit under section 10(2)(vii) to the extent of Rs. 38,465 was concerned, the Income-tax Officer held in the reassessment proceedings that these two items had escaped assessment and he, therefore, brought these two items, the amount of rebate under corporation tax and the profit under section 10(2)(vii) of the Act of 1922 to tax. Against the decision of the Income-tax Officer in reassessment proceedings, the assessee carried the matter in appeal and at that stage it was contended before the Appellate Assistant Commissioner that since the basis on which the proceedings in reassessment were commenced under section 148 did not survive in view of the Supreme Court decision in Mir Mohammad Ali's case [1964] 53 ITR 165 (SC) the Income-tax Officer was not justified in making reassessment in respect of other items of income which had escaped assessment or in those cases where certain excessive relief by way of tax had been granted. The Appellate Assistant Commissioner rejected this contention and he upheld the order of the Income-tax Officer. Before the Income-tax Tribunal, the same argument which was urged before the Appellate Assistant Commissioner, namely regarding the basis for the reassessment proceedings having disappeared was again urged and the Tribunal held that the foundation on which the reassessment proceedings were based having vanished, the Income-tax Officer could not bring in the assessment some other items of income or withdraw excessive relief by way of tax allowed at the time of the original assessment, while dealing with reassessment proceedings. The Tribunal, therefore, held that the proceedings under section 147 were bad in law and have, therefore, to be cancelled. Thereafter, at the instance of the revenue the questions hereinabove set out have been referred to us for our opinion.

3. We find from the order of the Tribunal that on the order sheet under the date March 28, 1964, where the Income-tax Officer recorded his reasons for reopening the assessment under section 147 of the Act, he had noted :

"The development rebate claimed by the assessee on item of machinery known as 'warp stop motions' worth Rs. 38,015 was inadvertently allowed. The recovery of development rebate on Rs. 38,015 at 25% amount to Rs. 9,504. Issue notice u/s. 148 of the I.T. Act, 1961. This was noticed while submitting remand report in this case."

4. It may be pointed out at this stage that in view on certain earlier decision and particularly a decision of the Bombay High Court, the view which prevailed regarding development rebate on machinery was that the development rebate could be allowed only on one complete machine and not on separate parts of a machine. Warp stop motions was a mere part of a machine and was not a complete machine by itself. Following that earlier view, the Income-tax Officer, when he realised that what was known as warp stop motions machine was not a separate machine by itself but was a part of a machine, issued this notice under section 148 proposing to reopen the assessment proceedings on the ground that the development rebate regarding warp stop motions was wrongly allowed. After this notice was issued on March 28, 1964, as observed above, the Supreme Court decided Mir Mohammad Ali's case [1964] 53 ITR 165 (SC) and in that case it was held that development rebate was admissible on parts of machines also. It was sub view of this decision in Mir Mohammad Ali's case [1964] 53 ITR 165 (SC) that the question of development rebate on warp stop motions machine was bound to be decided and was, in fact, decided in favour of the assessee. However, in reassessment proceedings the other two items, namely, rebate regarding corporation tax to the extent of Rs. 48,300 and profit under section 10(2)(vii) to the extent of Rs. 38,465 which had also escaped assessment at the time of the original assessment proceedings, were brought to tax and the question that we have to consider is whether it can be said that the proceedings before the Income-tax Officer were validly initiated or not.

5. As regards the exact scope of the powers of the Income-tax Officer in reassessment proceedings, now the position is very clear and particular the decision of the Supreme Court in V. Jaganmohan Rao v. Commissioner of Income-tax [1970] 75 ITR 373 (SC), the exact scope of what the Income-tax officer can do in reassessment proceedings is very clear. The section before the Supreme Court in that case was section 34 of the Indian Income-tax Act, 1922, which was in identical terms as section 147 of the Act of 1961.

6. At page 380 of the report in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC) Ramaswami J. delivering the judgment of the Supreme Court, observed :

"... once proceedings under section 34 are taken to be validly initiated with regard to two-thirds share of the income, the jurisdiction of the Income-tax Officer cannot be confined only to that portion of the income. Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under sub-section (2) of section 22 the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1)(b) the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during the year"

7. The Madras High Court in AL.VR.ST. Veerappa Chettiar v. Commissioner of Income-tax [1973] 91 ITR 116 (Mad) has summarized the position correctly and at page 123 the proposition of law has been stated as follows :

"It is clear that cone the reassessment proceedings are validly initiated by the Income-tax Officer in respect of an items of income either under section 34(1)(a) or under Section 34(1)(b), the jurisdiction of the Income-tax Officer to reassess is not confined to the items of income in respect of which notice has been issued, but extends to all items of income which have escaped assessment and which may fall either under Section 34(1)(a) or Section 34(1)(b)."

8. In Controller of Estate Duty v. N. A. Merchant [1975] 101 ITR 270 (Guj), we ourselves have held that the decision of the Madras High Court in AL. VR. ST. Veerappa Chettiar's case [1973] 91 ITR 116 (Mad) correctly summarizes the legal position regarding the power of the authority concerned in reassessment proceedings.

9. A Full Bench of this High Court in Poonjabhai Vanmalidas & Sons v. Commissioner of Income-tax [1974] 95 ITR 251, 269, 270, 271 (Guj) [FB] examined all the cases up-to-date on the point and has summarized the legal poison as follows :

"... the correct legal position is that if there are some reasonable grounds for the Income-tax Officer to believe that there had been non-disclosure of material facts, that would be sufficient to give him jurisdiction to issue the notice under section 34. The action of the Income-tax Officer in starting proceedings under section 34 is open to challenge in a court of law only to a limited extent, viz., (1) whether the Income-tax Officer held the belief that there had been such non-disclosure; and (2) the belief must be held in good faith; it cannot be merely a pretence; and it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing upon the formation of the belief and are not extraneous or irrelevant for the purpose of the Section. Therefore, if there are in fact reasonable grounds for the Income-tax Officer to believe that there was any non-disclosure of material facts, it is open to him to issue a notice and the issues of the notice is open to challenge in a court of law to the limited extent indicated above, viz., (1) that such belief was not at all held; (2) that the belief was not held in good faith and was merely a pretence."

10. It has also been pointed out by the Full Bench :

"... the action of the Income-tax Officer in starting the proceedings is open to challenge in a court of law only to a limited extent, viz., the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief and the assessee can contend that the Income-tax Officer did not in fact hold the belief that there had been such non-disclosure. Secondly, the belief must be held in good faith. It cannot be merely a pretence. Barring this limited challenge to the action of the Income-tax Officer for initiating action under section 34(1), if there are reasonable grounds for the Income-tax Officer to believe that there had been non-disclosure of any facts, which could have a material bearing on the assessment of the assessee, that would be sufficient to give him jurisdiction to issue a notice under Section 34 of the Act."

11. It has been pointed out by the Supreme Court in Sowdagar Ahmed Khan v. Income-tax Officer [1968] 70 ITR 79, 84 (SC) :

"In the context of these facts we are of opinion that there was some material before the Income-tax Officer on which he formed the prima facie belief that the assessee had omitted to disclose fully and truly all material facts and that in consequence of such non-disclose fully and truly all material facts and that in consequence of such non-disclosure income had escaped assessment. It follows that the Income-tax Officer had jurisdiction to issue notices under Section 3(1)(a) of the Act."

12. As a matter of fact, after the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer [1961] 41 ITR 191 (SC), the subsequent decisions both of the Supreme Court and High Courts have elaborated upon or explained the implications of the principles laid down in Calcutta Discount Company's case [1961] 41 ITR 191 (SC). It may also be observed that even before the decision of the Supreme Court in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC), the different High Courts, particularly, Punjab, Andhra Pradesh, Madras and Calcutta High Courts had taken a similar view regarding the powers of the Income-tax Officer in reassessment proceedings once there was valid initiation of reassessment proceedings.

13. As against this cope of the reassessment proceedings the main contention of the learned Advocate-General appearing for the assessee was that even through the Income-tax Officer may have very wide powers once the reassessment proceedings are validly initiated, the first stage is that the initiation of reassessment proceedings should be valid. He contended in this case in view of the decision of the Supreme Court in Mir Mohammad Ali's case [1964] 53 ITR 165 (SC), the reason for the belief of the Income-tax Officer had never existed and did not exist in law in view of the the section of the Income-tax Act dealing with development rebate as interpreted by the Supreme Court. He contended in this connection that the decision of the Supreme Court declares the law and hence the proceedings were not validly initiated by the Income-tax Officer. Information on a point of law is also information on the basis of which reassessment proceedings can be started but since in the instant case the belief of the Income-tax Officer when he initiated reassessment proceedings was based on an incorrect fact, namely, as to what was the correct legal portion on this particular aspect of development rebate, the belief itself could not be said to be a correct belief or a belief which could have been entertained by any reasonable person in view of the Supreme Court decision and hence the proceedings cannot be said to be validly initiated.

14. He contended further that the reason for the belief must have a direct bearing on the final order in reassessment proceedings because the existence of the reason is necessary not only at the stage when the notice regarding reassessment is issued but the reason must continue to exist till the order in reassessment proceedings is passed. He has in this connection relied upon certain observations of the Supreme Court in Chhugamal Rajpal v. S. P. Chaliha [1971] 79 ITR 603 (SC), Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax [1971] 82 ITR 147 (SC) and of the Bombay High Court in Shriyans Prasad Jain v. R. K. Bhalla, Income-tax Officer, [1974] 94 ITR 34 (Bom). Ultimately, the entire argument on behalf of the assessee as urged by the learned Advocate-General was that the proceedings could not be said to be validly initiated because the information on which the Income-tax Officer acted at the time of inciting the reassessment proceedings was no information at all in the eye of the law or looked at from any other angle, it cannot be said that the Income-tax Officer had reason to believe that the development rebate regarding warp stop motions had been incorrectly allowed in the original assessment proceedings. According to the learned Advocate-General whether the case is considered from the point of view of no information or from the point of view of reason to believe, ultimately it would mean that the proceedings were not validly initiated.

15. We are unable to accept these contentions of the learned Advocate-General because what is necessary is that the proceedings must be validly initiated and as of the moment of initiation it must be considered whether the initiation was valid or not. At the time or on the date on which the Income-tax Officer issued the notice under section 147 on the footing that the development rebate regarding warp stop motions had been wrongly allowed in the original proceedings, in view of the legal position as it was well understood, it was open to him to initiate proceedings. As at that moment when he decided to issue the notice under Section 148 regarding reassessment proceedings, his action was valid. The decision of the Supreme Court in Mir Mohammad Ali's case [1964] 53 ITR 165 (SC) in the light of which it turned out that the development rebate had been rightly allowed in the original assessment proceeding, was decided nearly a month after the Income-tax Officer issued the notice under section 148 and though a decision of the Supreme Court declares what the law of the land is, that declaration cannot render invalid the action of the Income-tax Officer in initiating reassessment proceedings though on the date on which the proceedings were initiated, his action was valid. It is because of this initial validity of the action of the Income-tax Officer as on the date on which or the moment at which the proceedings were initiated, that it must be held that once they were validly initiated, the Income-tax Officer had correctly and validly initiated the proceedings. There is no question of the basis or the foundation of the reassessment proceedings having disappeared. It may be that in respect of the item regarding which the reassessment proceedings were started it may ultimately turn out to have been correctly assessed when reassessment proceedings are considered. But that does not deprive the Income-tax Officer of his power to consider all the items in reassessment proceedings are validly started, the Income-tax Officer is not confined merely to the item in respect of which or on the basis of which he had initiated reassessment proceedings. As Ramaswami J. has stated in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC) the Income-tax Officer has not only the jurisdiction but it is his duty to levy tax on the entire income that had escaped assessment during the relevant assessment year when the original assessment was done. Under these circumstances, the proceedings in reassessment having been found to be validly initiated, it is obvious that the Income-tax Officer had not only the jurisdiction to being the other two items regarding Corporation Tax rebate and the profit under section 10(2)(vii) in the reassessment proceedings but it was his duty to bring in these two items if he found that they had escaped assessment. In our opinion, this not a case of the type which the Supreme Court dealt with in S. A. L. Narayan. Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149 (SC), where because of a retrospective amendment in legislation and the legal fiction which goes with the retrospective legislation, the Income-tax Officer had to exercise his discretion and the discretion was conferred with retrospective effect by legislation. Though the effect of the Supreme Court decision by virtue of the provision of the Constitution is that the Supreme Court declares the law of the land and it must be held to have been always the law of the land, once it has so declared, it cannot be placed on the same footing as a retrospective piece of legislation and the legal fiction which goes with retrospective legislation cannot arise in the case of the decision of the Supreme Court declaring what the law of the land is.

16. In the instant case it cannot be said, therefore, that the reason for the belief of the Income-tax Officer did not exist at all at the time when he initiated the proceedings though it may turn out subsequently that the view of law on which he initiated the reassessment proceedings subsequently turned out to be erroneous in the light of the decision of the Supreme Court in Mir Mohammad Ali's case [1964] 53 ITR 165 (SC). We, therefore, hold that the Tribunal erred in law in holding that the foundation on which the reassessment proceedings were based having vanished, the Income-tax Officer could not bring in the assessment more items of income or withdraw excessive relief by way of tax allowed at the time of original assessment, in reassessment proceeding. We also hold that the reassessment proceedings were validly initiated and it cannot be said that they were bad in law. We, therefore, answer each of the two questions referred to us in the negative and against the assessee, that is, in favour of the revenue. The assessee will pay the costs of this reference to the Commissioner.

17. Questions answered in the negative.