1955 (11) TMI 39 - Other - Income Tax

Issues Involved:
1. Jurisdiction of the Court under section 204 of the Government of India Act, 1935.
2. Bar of the suit under section 67 of the Income-tax Act, 1922.
3. Maintainability of the suit under section 9 of the Civil Procedure Code.
4. Bar of the suit by time under article 14 of the Limitation Act.
5. Liability of the plaintiff Province to income-tax under the Income-tax Act, 1922.
6. Liability of the plaintiff to tax for goods sold outside British India before partition and outside Pakistan after partition.
7. Liability of the plaintiff Province to income-tax for goods sold before 14th August 1947.
8. Liability of goods sold through commission agents to income-tax.
9. Liability of profits paid to the Forest Department to income-tax.
10. Entitlement of the plaintiff Province to a declaratory decree.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Court under section 204 of the Government of India Act, 1935:
The Court held that it has exclusive jurisdiction to hear the suit under section 204 of the Government of India Act, 1935. The necessary conditions for this jurisdiction are a dispute between the Federation and a Province, involving a question of law on which the existence or extent of a legal right depends. The Court found that these conditions were satisfied as the dispute involved the right of the Federation to assess the Province to tax.

2. Bar of the suit under section 67 of the Income-tax Act, 1922:
The Court rejected the contention that the suit was barred under section 67 of the Income-tax Act, 1922. It held that section 204 of the Government of India Act, 1935, provides exclusive jurisdiction to the Federal Court in disputes between the Federation and a Province, overriding the provisions of the Income-tax Act.

3. Maintainability of the suit under section 9 of the Civil Procedure Code:
The Court held that section 9 of the Civil Procedure Code does not bar the suit. The suit was found to be competent under section 204 of the Government of India Act, 1935, as it involved a question of jurisdiction of the Income-tax Officer to tax the Provincial Government.

4. Bar of the suit by time under article 14 of the Limitation Act:
The Court found that the suit was not barred by time under article 14 of the Limitation Act. The assessment being void and the tax not having been paid, no question of limitation arose.

5. Liability of the plaintiff Province to income-tax under the Income-tax Act, 1922:
The Court held that the Government of a Province is not an "association of persons" under section 3 of the Income-tax Act, 1922, and therefore, not liable to income-tax. The term "association of persons" was interpreted to mean a group with determinate members, which the Provincial Government does not constitute.

6. Liability of the plaintiff to tax for goods sold outside British India before partition and outside Pakistan after partition:
The Court held that the plaintiff was not liable to tax for goods sold outside British India before partition and outside Pakistan after partition. The proviso to section 155 of the Government of India Act, 1935, does not create a liability but merely recognizes an existing one, which was not established by any specific legislation.

7. Liability of the plaintiff Province to income-tax for goods sold before 14th August 1947:
The Court ruled that the plaintiff Province was not liable to income-tax for goods sold before 14th August 1947. The assessment was found to be unprecedented and without jurisdiction.

8. Liability of goods sold through commission agents to income-tax:
The Court did not find any specific liability for goods sold through commission agents to income-tax, as the overall assessment of the Provincial Government was held void.

9. Liability of profits paid to the Forest Department to income-tax:
The Court did not specifically address the liability of profits paid to the Forest Department to income-tax, as the general assessment was found to be without jurisdiction.

10. Entitlement of the plaintiff Province to a declaratory decree:
The Court granted the declaratory decree, stating that the Government of West Pakistan is not liable to income-tax or excess profits tax in respect of the profits earned by the Province of Punjab from the Jallo Rosin and Turpentine Factory.

Conclusion:
The suit was decreed in favor of the plaintiff, declaring that the Government of West Pakistan is not liable to income-tax or excess profits tax for the profits earned by the Province of Punjab from the Jallo Rosin and Turpentine Factory. Both parties were ordered to bear their own costs.

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