1947 (4) TMI 12 - Other - Income Tax

Issues Involved:

1. Validity of the Notification issued by the Governor of Bihar on 26th May, 1940.
2. Validity of Regulation I of 1941 and Regulation IV of 1942.
3. Legislative power of the Governor under Section 92 of the Government of India Act, 1935.
4. Effectiveness of Regulations I of 1941 and IV of 1942 on the appellant's assessment.

Issue-wise Detailed Analysis:

1. Validity of the Notification issued by the Governor of Bihar on 26th May, 1940:

The Notification issued by the Governor of Bihar under Section 92(1) of the Government of India Act, 1935, aimed to retrospectively apply certain Acts to the Santal Parganas and the Chota Nagpur Division. The Notification included the Indian Income-tax (Amendment) Act, 1939, the Income-tax Law Amendment Act, 1940, and the Excess Profits Tax Act, 1940. This Notification was a crucial point of contention.

2. Validity of Regulation I of 1941 and Regulation IV of 1942:

Regulation I of 1941 was enacted to remove doubts about the applicability of certain Acts in the partially excluded areas, receiving the Governor-General's assent on 13th June, 1941. However, it was later found that the Finance Acts of 1938 and 1939 were not included. Consequently, Regulation IV of 1942 was enacted to amend Regulation I of 1941, including the Finance Acts of 1938 and 1939. The appellant contended that both regulations were ultra vires the Governor's authority.

3. Legislative power of the Governor under Section 92 of the Government of India Act, 1935:

Section 92(1) of the Government of India Act, 1935, allowed the Governor to apply Acts to excluded or partially excluded areas through public notification. Section 92(2) empowered the Governor to make regulations for the peace and good government of these areas, which could repeal or amend any existing law applicable to the area. The appellant challenged the Governor's legislative power under these provisions.

4. Effectiveness of Regulations I of 1941 and IV of 1942 on the appellant's assessment:

The appellant argued that the assessment made on 14th February, 1940, was a nullity as the Finance Act of 1939 was not applicable to the Chota Nagpur Division at that time. The appellant's appeal to the Appellate Assistant Commissioner was dismissed on 3rd March, 1942, before Regulation IV of 1942 came into effect. The appellant contended that subsequent regulations could not validate an already completed assessment.

Judgment Analysis:

The Federal Court held that the assessment proceedings were not concluded as the appellant had kept them alive by filing appeals. The Court emphasized that the right to appeal and the machinery provided in the Income-tax Act were significant for addressing the validity of legislation. The Court referred to the Privy Council's observations in The Raleigh Investment Company Ltd. v. The Governor General in Council, highlighting the importance of the appellate process in considering the validity of taxing provisions.

The Court noted that when an appeal is pending, the deciding tribunal must apply the law in force at the time of its decision. The retrospective application of Regulation IV of 1942 meant that the Finance Act of 1939 was deemed to have been in force in the Chota Nagpur Division when the Income-tax Appellate Tribunal and the High Court decided the appeals. Therefore, the orders passed by these tribunals were valid according to the law then in force, rendering the appellant's contention about the nullity of the assessment order irrelevant.

Conclusion:

The appeal was dismissed with costs, affirming the validity of the Notification issued by the Governor of Bihar on 26th May, 1940, and the subsequent Regulations I of 1941 and IV of 1942. The Court upheld the Governor's legislative power under Section 92 of the Government of India Act, 1935, and confirmed the effectiveness of the regulations on the appellant's assessment.

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