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TMI Blog2015 (3) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... income is received by a company, firm or association of persons and the business through which such income is received is discontinued in any year, an assessment may be made in that year on the basis of the agricultural income received during the period between the end of the previous year and the date of the such discontinuance, in addition to the assessment, if any, made on the basis of the agricultural income received in the previous year. (2) Any person discontinuing any such business shall give to the Agricultural Income-tax officer notice of such discontinuance within thirty days thereof and where any person fails to give the notice required by this sub-section, such officer may direct that a sum shall be recovered from him by way of penalty not exceeding the amount of agricultural income-tax subsequently assessed on him in respect of any agricultural income of the company, firm or association of persons up to the date of the discontinuance of the business. (3) Where an assessment is to be made under sub-section (1), the Agricultural Income-tax officer may service on the person whose agricultural income is to be assessed, or, in the case of a firm on any person who was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her and also spoke of income of a firm which is dissolved as opposed to a firm whose business had been discontinued. With respect to such income, every person who was, at the time of discontinuance or dissolution, a partner of such firm was liable to be jointly or severally assessed on such agricultural income as also to pay the same by way of tax penalty, etc. In L.P. Cardoza and others v. Agricultural Income Tax Officer and others [(1997) 227 ITR 421], the question involved was as to whether a dissolved firm could be assessed to agricultural income tax after the date of its dissolution in respect of income received for supply of goods made by the firm prior to its dissolution. This question arose in the light of Section 26(4) and Section 27 as they then stood, that is, as they stood in 1987. The question was answered by the Bench after setting out the aforesaid provisions as follows: - "We are, therefore, unable to hold that under section 27 the dissolved firm could be deemed to be in existence for purpose of assessment in respect of the income derived after the date of dissolution of the firm. In fact in W.P. No. 2397 and 2398 of 1988 that is the view taken by the Karnataka A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is received after the dissolution in respect of agricultural produce supplied by the firm before its dissolution, the firm itself could be assessed in the year of receipt of income notwithstanding its dissolution." On a reading of this judgment, two things become clear. Section 27 of the Act would not help in answering the question before the Court as a firm after dissolution has no existence in the eye of law and cannot for that reason be an assessee. Secondly, Section 26(4) also did not help for the self same reason and also because it referred to only discontinuance of business of a firm as opposed to dissolution of a firm. The court specifically held that there was nothing in Section 26(4) as it then stood or Section 27 to indicate that where the firm is dissolved and income is received after dissolution in respect of agricultural produce supplied by the firm before dissolution, the firm itself could be assessed in the year of receipt of income notwithstanding its dissolution. Faced with this decision of the Karnataka High Court, the legislature amended Section 26(4) retrospectively that is, with effect from, 01.04.1975. The amended provision now reads as f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of income that was earned by it pre-dissolution but received post-dissolution. The deeming fiction has now been introduced by the explanation (and with retrospective effect from 1975) thereby making it clear that the basis of the law as it stood when Cardoza's case was decided has now been changed with effect from 1975. The position which therefore, emerges is that instead of such income being taxed at the hands of the "recipient", it is now taxed in the hands of the dissolved firm. The said amendment was the subject matter of challenge before a learned Single Judge of the High Court of Karnataka. The Single Judge repelled the challenge basically on the ground that the explanation only clarified the main provision and therefore did not go beyond the main provision. Equally, since the legislature has the right to amend both prospectively and retrospectively, all that was done in the present case was an exercise of legislative power retrospectively and therefore, no question arose of any discrimination on this count. The Single Judge therefore, dismissed the writ petitions before him. In appeal before the Division Bench, the Division Bench set out all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d collected in accordance with law. The ratio of the decision emerges from paragraph 18 of the judgment which his set out hereinbelow: - "In the instant case, the State instead of remedying the defect or removing the lacuna has by the impugned amendment sought to raise the rate of tax from 6 = per cent to 45 per cent with retrospective effect from April 1, 1966 to avoid the liability of refunding the excess amount collected and has further purported to nullify the judgment and order passed by the High Court directing the refund of the excess amount illegally collected by providing that the levy at the higher rate of 45 per cent will have retrospective effect from April 1, 1966. The judgment of the High Court declaring the levy of sales tax on excise duty, education cess and health cess to be bad become conclusive and is binding on the parties. It may or may not have been competent for the State Legislature to validly remove the lacuna and remedy the defect in the earlier levy by seeking to impose sales tax through any amendment on excise duty, education cess and health cess; but, in any event, the State Government has not purported to do so through the Amending Act. As a resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m April 1, 1966 and to the extent it seeks to nullify the earlier judgment of the High Court. We declare that Section 2 of the impugned amendment to the extent that it imposes the higher levy of 45 per cent with retrospective effect from April 1, 1966 and Section 3 of the impugned Act seeking to nullify the judgment and order of the High Court are invalid and unconstitutional." It is clear from this judgment that two reasons were given for striking down the retrospective levy. The first reason given was that, in the facts and circumstances of the case, retrospectively enhancing of the levy of duty from 6 = per cent to 45 per cent is in itself arbitrary and unreasonable. The second reason given is that the defect or lacuna found by the High Court is not sought to be remedied and the only justification for the steep rise in the rate of duty is to nullify the effect of an earlier binding judgment. It was held that the vice of illegal collection in the absence of the removal of the illegality which led to the invalidation of the earlier levy continued to taint the earlier levy. This judgment is wholly distinguishable from the facts in the present case. All that has been d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but was upheld. On Appeal, this Court held the Amendment Act unconstitutional. On a close reading of the judgment, it is clear that the main ground on which the Act was held to be incompetent was that raising the rate of tax from 6= % to 45% with retrospective effect was "clearly arbitrary and unreasonable" and, therefore, violative of Articles 14 and 19. It was observed that instead of removing the defect/lacuna pointed out by the High Court, the legislature sought to raise the rate of tax steeply with retrospective effect and that it was bad. The judgment cannot be read as laying down that in no event can the legislature seek to render the judgment of the Court ineffective and inoperative by amending or rectifying the defect or the lacuna pointed out, on the basis of which the judgment was rendered. In my opinion, therefore, the said judgment cannot be understood as supporting the appellant's submission nor can it be read as militating against the well-accepted power of Parliament which has been reiterated in innumerable judgments of this Court." In the Indian Aluminium Co. and others v. State of Kerala and others [(1996) 7 SCC 637], there is a long discussion coupled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scan the law to find out; (a) whether the vice pointed out by the court and invalidity suffered by previous law is cured complying with the legal and constitutional requirements; (b) whether the legislature has competence to validate the law; (c)whether such validation is consistent with the rights guaranteed in Part III of the Constitution. (7) The court does not have the power to validate an invalid law or to legalise impost of tax illegally made and collected or to remove the norm of invalidation or provide a remedy. These are not judicial functions but the exclusive province of the legislature. Therefore, they are not encroachment on judicial power. (8) In exercising legislative power, the legislature by mere declaration, without anything more, cannot directly overrule, revise or override a judicial decision. It can render judicial decision ineffective by enacting valid law on the topic within its legislative field fundamentally altering or changing its character retrospectively. The changed or altered conditions are such that the previous decision would not have been rendered by the court, if those conditions had existed at the time of declaring the law as invalid. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only thing done in the present case is that a firm is by fiction of law continued as such for certain purposes of assessment even after its dissolution. Equally, no question of interpretation qua retrospectivity arises. The legislature in the present case has expressly made the impugned provision retrospective. On all these counts, this judgment is distinguishable and would not apply at all here. It was then contended based on Tata Motors Ltd. v. State of Maharashtra and others [(2004) 5 SCC 783] from para 12 thereof, that withdrawal with retrospective effect of relief properly granted by statute to an assessee which the assessee has lawfully enjoyed as a vested statutory right cannot be taken away unless there be strong and exceptional circumstances justifying the said withdrawal. On facts again, this judgment does not apply. There is no withdrawal of any right which has become a vested statutory right which deprives an assessee of anything in the present case. As has been noted above, what was taxable in the hands of a recipient assessee is now taxable in the hands of a dissolved firm post-dissolution only for certain purposes. This judgment also therefore, cannot have a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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