1951 (1) TMI 34 - HC - Income Tax

Issues Involved:
1. Whether Rajasthan became taxable territory on 1-4-1950, and therefore, incomes accruing or arising prior to that date were not liable to income-tax.
2. Whether the Parliament had no power to make law relating to the imposition of income-tax on incomes accruing prior to 26-1-1950.
3. Whether the petitioner was not competent to ask for a Writ of Prohibition because a specific and adequate remedy was available to him under the provisions of the Income-tax Act.
4. Whether the Union of India had done no judicial act in respect of which a writ of prohibition may be issued against it, and further, whether a writ could not be issued since the Income-tax Commissioner or the Income-tax Officer, Jodhpur, were not parties to the petition.
5. Whether the Instrument of Accession was a contract between the Government of India and the Rajpramukh of Rajasthan, and while it was open to either of them to claim enforcement of its provisions, the subject was not competent in law to do so.

Issue-wise Detailed Analysis:

1. Whether Rajasthan became taxable territory on 1-4-1950, and therefore, incomes accruing or arising prior to that date were not liable to income-tax:

The court noted that the Income-tax Act, 1922 was not applicable in Rajasthan prior to 1-4-1950. The Finance Act of 1950 made Rajasthan a taxable territory from 1-4-1950. The court highlighted that the income taxed is that of the previous year and not the year of assessment. Sections 3 and 4 of the Act were interpreted to mean that the income should have accrued during the previous year and must have been received or accrued in the taxable territory during that year. The court concluded that Rajasthan became a taxable territory only from 1-4-1950, and therefore, income received, accruing, or arising in Rajasthan for any period prior to that date was not liable to assessment to income-tax.

2. Whether the Parliament had no power to make law relating to the imposition of income-tax on incomes accruing prior to 26-1-1950:

The court examined the Indian Independence Act, 1947, and the Government of India Act, 1935, which provided the framework for the Dominion of India and its legislative powers. The Instrument of Accession executed by the Rajpramukh of Rajasthan explicitly excluded the authority of the Dominion Legislature to impose income-tax in Rajasthan. The court held that the Parliament had no power to enact a law imposing income-tax in Rajasthan in respect of income prior to 26-1-1950, as the Instrument of Accession limited this authority.

3. Whether the petitioner was not competent to ask for a Writ of Prohibition because a specific and adequate remedy was available to him under the provisions of the Income-tax Act:

The court referred to established legal principles that a writ of prohibition can be issued even if an alternative remedy exists, particularly when there is a complete lack of jurisdiction. The court found that since there was no law according to which income-tax could be imposed for the period prior to 1-4-1950, a proper case for the issue of a writ of prohibition had been made out.

4. Whether the Union of India had done no judicial act in respect of which a writ of prohibition may be issued against it, and further, whether a writ could not be issued since the Income-tax Commissioner or the Income-tax Officer, Jodhpur, were not parties to the petition:

The court held that a notice by the Income-tax Officer, who is acting on behalf of the Government of India, is a judicial act by the latter. Therefore, the petitioner was entitled to a writ of prohibition against the Union of India. Although the Income-tax Officer, Jodhpur, and the Income-tax Commissioner were not parties to the petition, the court noted that they had actively participated in the proceedings. However, a writ could not be issued against them directly, but a direction to the Union to instruct its employees to desist from recovering income-tax would serve the petitioner's purpose.

5. Whether the Instrument of Accession was a contract between the Government of India and the Rajpramukh of Rajasthan, and while it was open to either of them to claim enforcement of its provisions, the subject was not competent in law to do so:

The court dismissed the argument that the terms of the Instrument of Accession could not be enforced by the subject in a court of law. It held that the petitioner, as a citizen of the Republic of India, had the right to seek redress in court for his grievances, and the doctrine of an Act of State did not apply in this context.

Conclusion:

The court accepted the petition and issued a writ to the Union of India directing it not to levy income-tax on the income of the petitioner accruing, arising, or received in Rajasthan (excluding the area of the former covenanting State of Bundi) prior to 1-4-1950. The Union of India was also instructed to direct its Income-tax Officers not to demand any return of income, account books, or other information from the petitioner for the purpose of making any assessment of income-tax for the period prior to 1-4-1950. The respondent was ordered to pay costs to the petitioner assessed at Rs. 600.

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