1964 (3) TMI 13 - SC - Income Tax

Whether the first respondent Corporation is entitled to levy a tax on pensioners in respect of the pensions received by them? Held that - The appeal accordingly succeeds and the appellant is held entitled to the relief prayed by him in the petition he filed in the High Court viz. a writ of prohibition against the respondent-Corporation from enforcing the demand

Issues Involved:
1. Constitutional validity of the profession tax imposed on pensioners.
2. Legislative competence of the State Legislature to impose the tax.
3. Validity of the tax under the Government of India Act, 1935.
4. Validity of the tax under the Constitution of India.
5. Effect of amendments and resolutions on the validity of the tax.

Issue-wise Detailed Analysis:

1. Constitutional Validity of the Profession Tax Imposed on Pensioners:
The appellant challenged the constitutional validity of a notice requiring him to pay profession tax on the grounds that he, as a pensioner, did not fall under the categories of "profession, trade, calling, or employment" as per the relevant constitutional provisions. The court had to determine whether the Corporation of Madras was entitled to levy a tax on pensioners in respect of the pensions received by them.

2. Legislative Competence of the State Legislature to Impose the Tax:
The appellant argued that the levy of profession tax on pensioners was beyond the legislative competence of the State Legislature as it amounted to a tax on income, which fell within the exclusive domain of the Union List under Entry 82. The relevant entry in the State List (Entry 60) allowed for "Taxes on professions, trades, callings, and employments," which did not include pensions.

3. Validity of the Tax under the Government of India Act, 1935:
The court examined whether the tax was lawfully levied before the commencement of the Constitution, as required by Section 143(2) of the Government of India Act, 1935. The Act of 1936 amended the original 1919 Act, but the statutory charge to tax on pensions ceased in April 1936 and was re-imposed by a resolution effective from April 1, 1937. This break meant that the tax was not "lawfully levied" immediately before the commencement of Part III of the Government of India Act, 1935.

4. Validity of the Tax under the Constitution of India:
The court noted that for the tax to be valid under the Constitution, it had to be shown that it was lawfully levied prior to the Constitution's commencement. The court found that the tax on pensioners was not lawfully levied just prior to April 1, 1937, and thus could not be continued under Article 277 of the Constitution. The tax on pensions was deemed to be a tax on income, falling under the Union List, and not a tax on professions, trades, callings, or employments under the State List.

5. Effect of Amendments and Resolutions on the Validity of the Tax:
The amendments made by the Act of 1936 and subsequent resolutions were scrutinized. The court found that the tax imposed by the resolution of the Council effective from April 1, 1937, was a new levy and not a continuation of the pre-existing tax. The amendments to Schedule IV in 1942, which classified individuals based on half-yearly income, did not retroactively validate the tax on pensioners for the period between 1936 and 1942.

Conclusion:
The court concluded that the tax on pensioners was not lawfully levied prior to the commencement of the Constitution and thus could not be continued under Article 277. The appeal succeeded, and the appellant was entitled to a writ of prohibition against the Corporation of Madras from enforcing the demand for profession tax on his pension. The appellant was awarded costs from the respondents.

Judgment:
The appeal was allowed, and the appellant was granted the relief sought in the petition filed in the High Court.

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