1957 (5) TMI 5 - SC - Income Tax

Whether the appeals before the Appellate Assistant Commissioner fell to be decided in accordance with the provisions of the Patiala Income-tax Act or the Indian Income-tax Act ? Whether the appeals before the Appellate Tribunal fell to be decided in accordance with the provisions of the Patiala Income-tax Act or the Indian Income-tax Act ? Whether, on the assumption that the assessee company was not bound to deduct tax, its appeals before the Appellate Assistant Commissioner were competent in law ? Held that - As regards income of the accounting year 1949-50 or the year of assessment 1950-51 no State law of income-tax was operative in any Part B State. It appears that the error which has crept into the judgment of the High Court has been due to misreading the year 1949-50 as being assessment year and not accounting year. Therefore, both for the assessment years 1948-49 and 1949-50 the law applicable would be the Patiala income-tax law and not the Indian Income-tax Act and consequently no appeal against the order of the Income-tax Officer was competent. Answer to question Nos. 1 & 2 The Patiala Income-tax Act was in operation and no appeals lay and Ques no. 3 is in negative. Appeal allowed.

Summary

Issues:
Applicability of Indian Income-tax Act, 1922 to the erstwhile Pepsu area in the assessment years 1948-49 and 1949-50.

Analysis:
The case involved an appeal regarding the applicability of the Indian Income-tax Act, 1922 to the erstwhile Pepsu area for the assessment years 1948-49 and 1949-50. The assessee company, incorporated in the Patiala State, failed to deduct income tax and super-tax from remuneration paid to managing agents and auditing fees. The Income-tax Officer issued demand notices under the Patiala Income-tax Act. The Appellate Assistant Commissioner reduced the amount demanded but did not decide on the deduction issue. The Income-tax Appellate Tribunal held that no appeal lay under the Patiala Income-tax Act. The High Court determined that for 1948-49, the Patiala Income-tax Act applied, making the appeal non-appealable to the Appellate Assistant Commissioner. However, for 1949-50, Indian law applied, allowing the appeal against the Income-tax Officer's order. The Revenue appealed, arguing that the Patiala Income-tax Act applied for 1949-50 as well.

The Finance Act of 1950, specifically Section 13, made the Indian Income-tax Act applicable to Part B States from the assessment year 1950-51 or the accounting year 1949-50. Section 2(14A) of the Indian Income-tax Act further clarified the Act's applicability to Part B States from April 1, 1950. The case of Union of India v. Madan Gopal Kabra established that the Indian Income-tax Act applied to all territories, including Rajasthan, for the assessment year 1950-51. The judgment emphasized that no State income tax law was in operation for the accounting year 1949-50 or the assessment year 1950-51 in any Part B State. Another case, Madhavakrishnaiah v. Income-tax Officer, supported the interpretation of Section 13 of the Finance Act of 1950.

The Court concluded that for both assessment years 1948-49 and 1949-50, the Patiala income-tax law applied, and no appeal against the Income-tax Officer's order was competent. The answers to the referred questions were in the negative, affirming that the Patiala Income-tax Act was in operation, and no appeals were permissible. The appeal was allowed without costs due to the respondent company's absence.