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TMI Blog1952 (11) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ropriety and validity of an order said to have been made on 29th February, 1952, by the Income-tax Officer, ignoring an order of interim injunction issued by this Court on 29th February, 1952, prohibiting the Income-tax Officer from taking any action to enforce the provisional assessment and the notice of demand dated 19th February, 1952, and imposing a penalty of ₹ 25,000, for the failure of the petitioners to pay the amount of the tax before the time fixed for its payment. The case of the petitioners before us is that until 31st March, 1950, they carried on business as a firm of shroffs and also dealt in gold, silver speculation business and that the firm had its offices at Bombay, Calcutta, Ujjain and Indore; that on or about 25th November, 1950, the Income-tax Officer, 'A' Ward, Indore, issued a notice under Section 22 of the Income-tax Act (hereinafter referred to as the Act) to Sir Hukumchand, a member of the petitioner-firm requiring him to make a return of his income for the income-tax assessment year 1950-51. In response to this notice, Sir Hukumchand while submitting a return under protest, addressed a letter dated 19th December, 1950, to the Income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g without Madhya Bharat was shown as ₹ 3,37,380. On receipt of the return, the Income-tax Officer made a provisional assessment of the tax on the income arising outside Madhya Bharat and assessed the petitioners to a tax of ₹ 2,58,154-8-0 in respect of the income and gave a notice to Sir Hukumchand on 19th February, 1952, to pay the amount of the tax on or before 29th February, 1952. On this very date, the Income- tax Officer wrote a letter to Sir Hukumchand explaining the provisional assessment and pointing out to him the fact that the assurance given by him in his letter of 4th January, 1952, related to the postponement of the assessment of the income accruing in Madhya Bharat only and not to the postponement of the assessment of the income arising outside Madhya Bharat, about the assessment of which there was no dispute. Thereafter on 28th February, 1952, this application was presented and the petitioners obtained from this Court on 29th February, 1952, an order restraining the non-applicants from enforcing or taking any steps to enforce the provisional assessment order and the notice of demand of the tax. This order was served on the Income-tax Officer on 3rd March, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-applicants. It is, however, denied by them that during the material period the petitioners were a firm carrying on business in Bombay, Indore and other places. The non-applicants maintain that the status of the petitioners according to the return filed by them is that of a Hindu undivided family. As to the grounds on which the petitioners challenge the assessment, the rejoinder of the Income-tax Officer, Indore, is that Section 3 read with proviso (b) to Section 2(14A) of the Act authorises the levy of the tax on incomes which accrued, arose or were received in Madhya Bharat prior to 1st April, 1950; that Parliament has the power under Article 246 of the Constitution read with the agreement entered into between the President of India and the Raj Pramukh of Madhya Bharat on 26th February, 1950, to impose tax on income which accrued, arose or was received in Madhya Bharat prior to 26th February, 1950, and that the provisions of the Indian Income-tax Act, 1922, and that Finance Act, 1950, which authorise the levy of the tax for the year 1950-51 are neither ultra vires nor illegal. As regards the validity of the notice the non-applicants stated in para 11A of the return that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bharat in the year ending on 31st March, 1950, as the foundation of his attack on the jurisdiction of the Income-tax Officer, Indore, to tax the income which the applicants derived from without Madhya Bharat. It, therefore, becomes necessary to consider the question whether the income which accrued to the petitioners in Madhya Bharat in the accounting year 1949-50 is liable to tax. I do not propose to set out here the elaborate and helpful arguments of the learned Counsel for the petitioners and of Mr. Chitale the learned Advocate General of Madhya Bharat who appeared on behalf of the Union of India. A reference will be made to them, where necessary, while dealing with the question raised by the submissions made by the learned Counsel. The questions are : (1) whether under Section 3 read with Section 2(14A) of the Act, the income accruing to the petitioner in the accounting year 1949-50 in Madhya Bharat is liable to tax; (2) whether if the said income is not liable to tax, the Income-tax Officer, Indore, can assess tax on the petitioners' income which accrued to them in Part A States during the year ending on 31st March, 1950; (3) whether the provisions of the India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable territories in such year by or on behalf of such person, or (b) if such person is resident in the taxable territories during such year,- (i) accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year, or (ii) accrue or arise to him without the taxable territories during such year, or (iii) having accrued or arisen to him without the taxable territories before the beginning of such year and after the 1st day of April, 1933, are brought into or received in the taxable territories by him during such year, or (c) if such person is not resident in the taxable territories during such year, accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year. The effect of Sections 3 and 4 is to tax the person resident in the taxable territories during the previous year, that is, the year previous to the year of assessment on all his income whencesoever derived and to tax the person not resident in the taxable territories upon all income which accrued or deemed to have accrued to the person in the taxable territories during the previous year. It is thus clear from Sections 3 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia excluding the State of Jammu and Kashmir and the Patiala and East Punjab States Union, and (e) as respects any period after the 12th day of April, 1950, the territory of India excluding the State of Jammu and Kashmir:- Provided that the taxable territories shall be deemed to include- ................................................................................................. ................................................................................................. (b) The whole of the territory of India excluding the State of Jammu and Kashmir- (i) as respects any period, for the purposes of Sections 4A and 4B, (ii) as respects any period after the 31st day of March, 1950, for any of the purposes of this Act, and (iii) as respects any period included in the previous year for the purpose of making any assessment of the year ending on the 31st day of March, 1951, or for any subsequent year. It will be noted from these provisions that if the matter stood alone on clauses (d) and (e) of Section 2 (14A) without the proviso, then the territories of Madhya Bharat could not be regarded as taxable territories during the accounting yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies which were before this date not taxable territories and where the machinery under the Act did not exist. To me, it seems that the combined result of sub-clauses (i) and (ii) of clause (b) of the proviso, so far as the petitioners are concerned, is to give jurisdiction to the Income-tax Officer, Indore, to charge them to tax in respect of the income which accrued to them in the year ending on 31st March, 1950, in a taxable territory without Madhya Bharat, it being an income which accrued to the petitioners who are deemed to be resident in the taxable territories of Madhya Bharat in that year under sub-clause (i) of clause (b) of the proviso. Coming now to sub- clause (iii) of clause (b) of the proviso, we find its language plain enough. It makes the whole of the territory of India including Madhya Bharat and excluding the State of Jammu and Kashmir a taxable territory during the period from 1st April, 1949, to 31st March, 1950, for the purpose of making any assessment of the year ending on 31st March, 1951. Under this clause the income which accrued to the petitioners in Madhya Bharat during the period 1st April, 1949, to 31st March, 1950, is an income which accrued in a taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble territory as respects the period after 31st March, 1950, for any of the purposes of Income-tax Act, 1922. So far as Rajasthan is concerned, the same matter is stated in clause (d) of the definition, but it also makes Patiala and East Punjab States Union as taxable territories for the period from 1st April to 12th April, although according to clause (e) in the definition, it was not declared to be taxable territory in that clause. Clause (ii) of the proviso was obviously enacted in order to get over the difficulty of separate assessment of tax for the period from 1st April to 12th April as regards individuals in Patiala and East Punjab States Union. In this second clause the words 'for any of the purposes of this Act' clearly signify that the aforesaid territory including Rajasthan is a taxable territory for the purposes of levy, assessment and collection of income-tax. In the third clause, the whole of the territory of India (excluding Jammu and Kashmir) is declared to be taxable territory as regards any period included in the previous year for the purposes of making any assessment of the year ending on 31st March, 1951, or for any subsequent year. Assuming for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other law as also taxable territory for the purpose of making assessment in the year 1950-51. The language used in clause (iii) is 'for the purpose of making any assessment of the year ending on the 31st day of March, 1951.' As observed earlier, there are three stages in connection with the imposition of a tax. The first is the declaration of liability, the second is the assessment and the third is the collection. This clause makes the territory a taxable territory for the purpose of making any assessment, but not for the purpose of chargeability. The chargeability is left to arise by some other law, and that law is the previous State law referred to in Section 13 of the Finance Act, 1950. As to Section 13 of the Finance Act, 1950, it was observed in the Rajasthan High Court decision that it kept alive the State law not only for the purpose of levy, assessment and collection of income-tax on the income of the year 1948-49, but also for the above purpose in the subsequent year and that, therefore, the income accruing or arising in Rajasthan for any period prior to 1st April, 1950, was chargeable to income-tax not under the Indian Income-tax Act but under the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accruing in the year from 1st April, 1949, to 31st March, 1950, was apparent on the face of the Indian Income-tax Act, it was not open to the Court to cut down the general words imposing the tax by reference to extraneous considerations such as the report of the Indian States Finance Inquiry Committee, or possible intention of the Legislature gathered from other Acts, and that Section 13 of the Finance Act, 1950, is perfectly intelligible if it is read as keeping alive the State law for the purposes of levy, assessment and collection of tax on the income of the period before 31st March, 1949. In my view, there is considerable force in the argument of the learned Counsel appearing on behalf of the Union of India. I have already indicated above the construction that ought to be put on the first sub-clause of clause (b) of the proviso. It is in no way different from that put by the Rajasthan High Court. As to the second sub- clause, I have already said that its object is not merely to make Patiala and East Punjab States Union a taxable territory from 1st April to 12th April, 1950, the period not included in the definition under clause (e); it is also to exclude the risk of a terr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusion that chargeability of the income accruing in that year to tax arises under Sections 3 and 4 of the Act. There can be no question of assessment under the Indian Income-tax Act, of tax on the income accruing in any particular year, if the liability to tax under the Act is not already in existence. As observed by Lord Dunedin in Whitney v. Commissioners of Inland Revenue [1926] A.C. 37; 10 Tax Cas. 88 there are three stages in the imposition of a tax. He said:- There is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next there is the assessment. Liability does not depend on assessment. That ex hypothesi has already been fixed. But assessment particularises the exact sum which a person liable has to pay. Lastly, come the methods of recovery if the person taxed does not voluntarily pay. This passage has been relied upon in the Federal Court decision referred to above. The observation, Liability does not depend on assessment. That ex hypothesi has already been fixed , is important and deserves to be noted. It shows that assessment under any Act presupposes the existence of a liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een said by the learned Judges of the Rajasthan High Court that under this section the State law is kept alive not only for the purpose of levy, assessment and collection on the income of the year 1948-49, but also for the above purposes in the subsequent year. So that if prior to 1st April, 1950, there was a law imposing income-tax in any part of Part B States, then the income accruing in that part in the year from 1st April, 1948, to 31st March, 1949, as also in the year 1st April, 1949, to 31st March, 1950, would be chargeable under the State law and not under the Indian Income- tax Act. I am unable to agree with this reading of Section 13 of the Finance Act, 1950. To my mind, Section 13 of the Finance Act preserves the operation of the State law imposing income-tax, super-tax or tax on profits of business for the purpose of levy, assessment and collection of the tax only in respect of the income accruing in the period before 31st March, 1949. It does not permit of the income accruing in any Part B State in the year 1st April, 1949, to 31st March, 1950, being charged to tax under the State law. For the period from 1st April, 1949, to 31st March, 1950, though not included in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... geable to tax under the Act, the effect of these words cannot be narrowed or whittled down by applying a rule of construction about statutes which are not by express words or necessary intendment retrospective. For all these reasons, I am disposed to accept the argument of the learned Counsel for the Union of India and hold that the income which accrued to the petitioners in the year from 1st April, 1949, to 31st March, 1950, in Madhya Bharat is chargeable to tax under the Indian Income-tax Act, and that irrespective of whether this income is or is not chargeable under the Act, sub-clause (i) and (ii) of clause (b) of the proviso of Section 2(14A) read with Section 64 give jurisdiction to the Income-tax Officer, Indore, to tax the petitioners in respect of the income which they derived in that year from without Madhya Bharat. As to the contention of the learned Counsel for the petitioners that Parliament has no power to make a law imposing income-tax in Madhya Bharat on income accruing before 26th January, 1950, the argument is that under the Government of India Act, 1935, the Indian Legislature had no power to make laws for Indian States with regard to any matter; that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Accession of the State and subject to the limitations contained therein. With the repeal of the Government of India Act, 1935, by the new Constitution, which was accepted by the Rulers of Gwalior, Indore and the Covenanting States as the Constitution for the United State of Madhya Bharat by executing a supplementary Covenant in 1949, the constitutional position of the State has entirely changed. The distinction which existed under the Government of India Act, 1935, between the Provinces and the Acceded States is gone. Under Article 1 of the Constitution, India is now a compact territory and a Union of States. Leaving aside the case of Kashmir, the States specified in Part B of the First Schedule of the Constitution are on a par with the States mentioned in Part A of the Schedule, with this difference that they are subject to the supervisory powers of the Centre for the transitional period of ten years under Article 371 and the provisions of Part VI of the Constitution apply to them with the modifications and omissions mentioned in Article 238. The legislative competence of Parliament in relation to Part B States is as varied and wide as it is in the case of Part A States. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Articles 245, 246 and 248 to indicate an intention to withhold from the Parliament the same absolute discretion as the British Parliament has with regard to past events as well as present and future, provided of course Parliament confines itself to the specified subjects and legislates within the limitations prescribed by Article 20. It would indeed be a violent straining of the wide words of the power to make laws conferred by Articles 245, 246 and 248 if we were to read into them a prohibition of retrospective laws. To do so would be to add to the Constitution, without express words, the prohibition of retrospective laws over and above the limits set out in Article 20. In that case I expressed my dissent from the view taken by the Rajasthan High Court in Kabra's case [1951] A.I.R. 1951 Raj. 94; 20 I.T.R. 214 that as the authority of the Dominion Legislature under the Government of India Act, 1935, in the matter of legislation for the purpose of imposition of income-tax was excluded in Rajasthan before 26th January, 1950, and as the Government of India Act, 1935, had been repealed by Article 395 of the Constitution, therefore, by virtue of Article 367 and Section 6 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to the Parliament under the new Constitution. This contention seems to me untenable. Article 372 does not save the Covenant which, as I have said before is not a statute and which did not itself impose any restrictions on the powers of the Dominion Legislature. Nor does the Article preserve Section 6 and 101 of the repealed Government of India Act, 1935, which permitted restrictions being put on the power of the Dominion Legislature by Instruments of Accession. This article is analogous to Section 292 of the Government of India Act, 1935, and as observed by the Federal Court in United Provinces v. Mt. Atiqua Begum [1947] A.I.R. 1947 F.C. 16 a provision like Section 292 is usually inserted in similar Acts to indicate that the repeal of the parent Act shall not be deemed to have repealed all the laws passed under that Act, and that the provision did not mean that no later Act of the Legislature can by words of retrospective operation antedate its effect so as to affect rights acquired under a previous law down to the date of the new legislation. There is, therefore, no justification for reading Article 372(1) as laying down any limitation upon the power of the Parlia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, Bihar [1947] A.I.R. 1947 F.C. 32; 15 I.T.R. 302, the jurisdiction of the Income-tax Officer to assess and the liability of the assessee to pay the tax are not conditional on the validity of the notice. Their Lordships observed in this case that the Income-tax assessment proceedings commence with the issue of a notice. The issue or receipt of a notice is not, however, the foundation of jurisdiction of the Income-tax Officer to make the assessment or of a liability of the assessee to pay the tax. It may be urged that the issue and service of a notice under Section 22(1) or (2) may affect the liability under the penal clauses which provide for failure to act as required by the notice. The jurisdiction to assess and the liability to pay the tax, however, are not conditional on the validity of the notice. These observations fully apply to the present case and on their basis, the contention of the petitioner as to the assessment being without jurisdiction because of an invalid notice, cannot be accepted. The last contention of the petitioners is that they raised before the Income-tax Officer, Indore, an objection as to the place of assessment and that the Income-tax Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Wallace Brothers Co. Ltd. v. Commissioner of Income-tax, Bombay, Sind and Baluchistan [1945] A.I.R. 1945 F.C. 9; 13 I.T.R. 39 in which it was observed that the question as to the place of assessment under Section 64(3) was more one of administrative convenience than of jurisdiction and that in any event it was not one for adjudication by the Court. In my view, this contention urged on behalf of the petitioners is without any force. Section 64 of the act provides that where an assessee carries on business at any place he shall be assessed by the Income- tax Officer of the area in which that place is situated, and where the business is carried on in more places than one, then by the Income-tax Officer of the area in which the principal place of business is situated. In all other cases, an assessee is assessed by the Income-tax Officer of the area in which he resides. Under sub-section (3) of Section 64 if any question arises as to the place of assessment then the question is to be determined by the Commissioner or by the Central Board of Revenue, The Income-tax Officer is also required under this sub-section to refer the matter as to the place of assessment for determination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive any indication as to the precise reason or reasons for the unwillingness of the assessee to furnish a return. Again, I fail to see how the statement in the letter addressed by Sir Hukumchand on 19th December, 1950, to the effect that the income which accrued to him in Madhya Bharat in the year 1949-50 could not be taxed under the Indian Income-tax Act and that, therefore, he was not liable to pay any tax can be read as even suggesting remotely that the petitioners objected to the place of assessment. It is one thing to deny liability and quite different to say that a particular officer has no jurisdiction to assess. It is important to note that the place of assessment has no reference at all to the liability of an income accruing in any period or in any area, to tax, under the Act or to the competency of the Income- tax Officer in the sense of his general authority to assess. The petitioners, no doubt, denied that they were assessable by reference to the income which accrued to them in Madhya Bharat in the year in question. But at no time did they call in question the place of assessment before the Income-tax Officer, Indore. The petitioners themselves stated in the return I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the hearing of this petition, it has been admitted by them that the returns of the Hindu undivided family of Sir Hukumchand for the assessment years 1949-50 and 1950-51 have not been filed before the Income-tax Officer, Bombay, Again, as the petitioner's principal place of business is Indore and the family resides in Indore, the jurisdiction of the Income-tax Officer, Indore, to assess the petitioners is not excluded by the fact that the Income-tax Officer, Bombay, has commenced assessment proceedings in respect of the income accruing and received by the petitioners within his area. Having regard to the view I have taken of the various contentions urged on behalf of the petitioners, it is unnecessary to deal with the point raised by Mr. Chitale that this Court should not interfere under Article 226 as the petitioners could have availed themselves of the adequate remedy provided by the Income-tax Act itself by way of an appeal under Section 30 or a revision under Section 33A of the Act. But I ought to notice the argument of the learned Counsel as regards the remedy of an appeal under Section 30. It is conceded that under Section 23B, there is no right of appeal against a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y obtained from this Court an interim order, their Secretary one Mr. Koria and their Income-tax Adviser one Mr. Shroff immediately went to the office of the Income-tax Officer to inform him of the order passed by this Court; but the Income-tax Officer did not grant them any interview. It is further stated that on 1st March, 1952, the office of the opponent No. 2 refused to accept service of the order of injunction passed by this Court and also refused to accept a letter addressed by the petitioner's Secretary to the Income-tax Officer informing him of the fact of the issue of the prohibitory order by this Court. The explanation which the Income-tax Officer has offered is that he did not take any notice of the letter addressed by Mr. Samvatsar as he had not filed any letter of authority for his appearance before him on behalf of the petitioner; that he did not evade granting an interview to the petitioner's representatives Messrs. Koria and Shroff; that the 1st day of March, 1952, being a Saturday, his office was closed to public business at 1-30 p.m. and it was not bound to accept any letter from the public after that time. While admitting that an order from this Court c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer that an order of this Court could be delivered to him at any hour and at any time. I would only point out that if the Income-tax Officer had made adequate arrangements for this being done, he would not have placed himself in a situation such as this. As it is, it appears from the report of the process-server that on 1st March, 1952, when he went to the Income-tax Officer to serve the order of injunction on the Income-tax Officer, a clerk in the office refused to accept service and informed him that the Income-tax Officer was not in the office; and that when thereupon, the process-server inquired about the residence of the Income-tax Officer, he was not given the necessary information to enable him to go to the residence of the Income-tax Officer for effecting service of the order. I hope that this state of things is remedied soon by the Income-tax Officer. In the result the order dated 29th February, 1952, of the Income- tax Officer imposing the penalty of ₹ 25,000 is declared illegal and without jurisdiction and is set aside. The petitioners' application under Article 226 of the Constitution to quash the provisional assessment and the notice of demand dated 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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