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1953 (12) TMI 3 - SC - Income TaxWhether Rajasthan became taxable territory during the financial year in this case, i.e., 1949-50? Whether the petitioner must be held to be immune from liability to assessment on the income of that year? Held that - The difference in the constitutional position which previously existed between the Provinces and the acceding States has thus disappeared except, of course, in regard to matters in which such distinction has been preserved by the Constitution itself, e. g., by Article 238 and Article 371. It follows that the amendment of Section 2, clause (14-A), of the Indian Act by the Finance Act, 1950, so as to authorise the levy of tax on income accruing in the territory of Rajasthan in the year 1949-50, is within the competence of Parliament and therefore valid.
Issues Involved:
1. Jurisdiction of the Union of India to levy income-tax on income accrued in Rajasthan prior to 1st April, 1950. 2. Interpretation of the term "taxable territories" under the Indian Income-tax Act, 1922, as amended by the Indian Finance Act, 1950. 3. Constitutionality of the Finance Act, 1950, in relation to its retrospective application. 4. Effect of the repeal of Section 101 of the Government of India Act, 1935, on the legislative powers of Parliament. Detailed Analysis: 1. Jurisdiction of the Union of India to levy income-tax on income accrued in Rajasthan prior to 1st April, 1950: The respondent, residing and conducting business in Jodhpur, Rajasthan, was required to file an income return for the year ending 31st March, 1950. The respondent challenged the jurisdiction of the Union of India to levy income-tax on income accrued in Rajasthan before 1st April, 1950, arguing that such income was not liable under any law validly in force in Rajasthan. The High Court of Rajasthan initially ruled in favor of the respondent, issuing a writ preventing the Union of India from levying such tax. 2. Interpretation of the term "taxable territories" under the Indian Income-tax Act, 1922, as amended by the Indian Finance Act, 1950: The Supreme Court examined the definition of "taxable territories" as amended by the Finance Act, 1950. The relevant clause (14A) defined taxable territories in a manner that included Rajasthan within the taxable territories for the purpose of assessment for the year ending 31st March, 1951, and for any subsequent year. The Court noted the complexity and potential contradictions within the definition but emphasized that the respondent would be chargeable to tax if Rajasthan was considered a taxable territory during the relevant period. 3. Constitutionality of the Finance Act, 1950, in relation to its retrospective application: The Supreme Court addressed the argument that the Finance Act, 1950, was ultra vires and void because Parliament lacked the competence to make laws with retrospective effect. The Court held that while the Constitution itself does not operate retrospectively, it does not preclude Parliament from enacting retroactive laws. Articles 245 and 246 of the Constitution, read with List I of the Seventh Schedule, empower Parliament to make laws, including retroactive legislation, for the whole territory of India. 4. Effect of the repeal of Section 101 of the Government of India Act, 1935, on the legislative powers of Parliament: The Court examined whether the repeal of Section 101 of the Government of India Act, 1935, which restricted the Dominion Legislature from imposing taxes in acceding states, affected Parliament's power to levy taxes. The Court concluded that Section 101 did not create any rights or privileges for the subjects of Rajasthan that would survive its repeal. The Proclamation by the Rajpramukh of Rajasthan in November 1949, which accepted the Constitution of India, superseded any inconsistent constitutional provisions. Thus, the legislative powers conferred on Parliament by the Constitution were not limited by the former restrictions of Section 101. Conclusion: The Supreme Court allowed the appeal, setting aside the judgment of the High Court. The Court held that the Finance Act, 1950, was within the competence of Parliament and validly authorized the levy of income-tax on the respondent's income accrued in Rajasthan for the year 1949-50. The appeal was allowed without any order as to costs.
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