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TMI Blog1943 (4) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... t of India as income tax under the said provision was not legally payable by them; they claim a declaration that the said provision are ultra vires and ask for a return of the money so paid and other reliefs. The defendants in their written statement have pleaded Section 226 of the Government of India Act, 1935, which in its material part provides :- "No High Court shall have any original jurisdiction in any matter concerning the revenue, or concerning any act ordered or done in the collection thereof according to the usage and practice of the country of the law for the time being in force." In order to decide whether and to what extent this plea will avail the defendants it is necessary to go into the facts of the case and the relevant provision of the law. There is no difference between the parties as to the facts. The Governor-General in Council as representing the Government of India is a party to the suit and has appeared through Sir Asoka Roy, the Advocate-General of Bengal, not acting as the Advocate General of Bengal, but as Counsel representing the Government of India; we were informed by Sir Asoka Roy that it was not necessary to give special notice to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered offices of six of the sterling companies are in the Isle of Man and of three others in London, but all the sterling companies have officer in London." Copies of Articles 97, 98 and 100 of the Memorandum of Association of the Tobacco Manufacturers (India) Ltd., are exhibited separately. It is agreed that each of the other sterling companies contains similar Articles. These are marked Exhibit B. All the companies above concerned, with the exception of the plaintiffs, have carried on business in India and made profits here which have been assessed to income tax and super tax under the Indian Income tax laws and those taxes have been paid. Dividends have been declared after payment of Indian Income Tax and super tax by the 11 companies, and the plaintiffs have received such dividends as they are entitled to on their share holdings in those eleven companies. Dividends on the two rupee-companies were paid to a representative of the plaintiff company at 37, Chowringhee, Calcutta. The dividends of the nine sterling companies were declared by them in England and paid by them in England to the plaintiff company in England. On June 6, 1939, the Income Tax Officer, Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., of India Ltd., 37, Chowringhee, Calcutta. Paragraph 6 of this letter is as follows :- "You are further requested to let me know that in view of Explanation (3) to Section 4(1) of the Act, the dividends shown in Section D of the return being income accruing or arising in British India and thus liable to be included in total income, it appears that the total income accruing or arising in British India exceed the income arising without British India in the previous year and as such in terms of Section 4A[c] the company is to be treated as resident in British India and as such the entire profits are liable to be taxed." (the letter is reproduced as put in evidence, the wording is faulty.) Paragraph 7 as follows :- "You are requested to let me know if you have anything to urge against this." On June 3, 1940, the plaintiffs replied from Rusham House, Egham, Surrey, to which address they had apparently removed from Millbank, London, as follows : "Dear Sir, Your letter of the April 3, addressed to this company, care of the Imperial Tobacco company of India, Limited, Calcutta has been forward to us." The Company contends that dividends declared ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) of the Act and Explanation (3) which were added to the Indian Income Tax act of 1922 by the Indian Income Tax (Amendment) Act of 1939 : "4. (1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which - (c) if such person is not resident in British India during such year, accrue or arise or are deemed to accrue or arise to him in British India during such year." Explanation is as follows :- "A dividend paid without British India shall be deemed to be income accruing and arising in British India to the extent to which it has been paid out of profits subjected to income tax in British India." At this time communications between India and England had become more difficult. On August 2, 1940, the Income Tax officer sent another notice under Section 22 of the Income Tax Act to the plaintiffs, and on August 3, Mr. Hamilton, an Accountant of the Imperial Tobacco company of India, Ltd., at 37, Chowringhee informed the Income Tax Officer of the difficulty in getting a reply from the Raleigh Investment Company, Ltd., and asked for an extension of time up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riting as a director of the Imperial Tobacco Company of India wrote back to the Income Tax officer stating at follows :- "Dear Sir, On Friday or Saturday last week delivery of a cover addressed to the Releigh Investment Co., Ltd., 37, Chowringhee, Calcutta, from your office was incorrect accepted here. You have already been advised that the Raleigh Investment Co., Ltd., have no place of business nor any representative in this country, and you were informed of the address to which correspondence should be sent. We have, on this occasion and without accepting any responsibility as to the ultimate delivery, re-addressed and air-mailed the cover to England; but if the contents called for an urgent replay of laid down a time limit within which some action should be performed, we would remind you that there is very considerable delay in the transmission of mails between this country and the United Kingdom." On February 19, the plaintiff company from England telegraphed to the Income Tax Officer, Calcutta, intimating to him that they would appeal against the assessment and on February 21, the Income Tax Officer replied by telegram : "appeal accepted if posted March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Appeal in this case, the Raleigh Investment Co., Ltd., has been advised to take other proceedings to have those questions determined. What form those proceedings should take is now under consideration. In the meantime, the Raleigh Investment Co., Ltd., does not wish to abandon its rights under the Act respecting the assessment on the constitutional question or on the other grounds raised. In the circumstances, I request that you would be good enough to allow the appeal to remain in abeyance by adjourning it sine die until such time as the Raleigh Investment Co., Ltd., been [Sic] able to decided upon its other course of action." On November 11, 1941, the Appellate Assistant Commissioner wrote to Mr. Ryan as follows :- "The request in your letter 21-8-41 is unusual and your proposed proceedings relating to the constitutional issues cannot arise under the Indian Income tax Act under certain provisions of which in am to here and decided the appeal. The procedure under this act has to be followed. If is decide against you, you may go to the Appellate Tribunal against whose order, if advised, you may ask for a Reference to the High Court. I do not propose therefore to k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Income Tax Act purport to authorize the assessment and charging to tax of a non resident company in respect of dividends which have been declared and or paid outside British India upon shares situate outside British India but which have never been brought into British India, the said provisions are ultra vires the legislative powers of the Central India Legislature and that therefore the plaintiff company is not liable to be assessed or charged to income tax or super tax in respect of the said assessment for the year 1938-40 was illegal and wrongful : (2) an injunction restraining the defendant, his officers, servants or agents from making any further assessment upon the plaintiff company in any subsequent years in respect of dividends of sterling companies declared and paid outside British India and not brought into British India; (3) repayment of the said total sum of ₹ 4,35,290-5-0 as income- tax and super-tax illegally levied and/or as money paid under coercion or duress and/or as money had and received by the defendant to the use of the plaintiff company; (4) interest upon the said sum of ₹ 57,689/- and ₹ 3,73,155-13-0 (portions of the said tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 047/- which is a part of the money the plaintiffs paid. Of that amount of tax a certain proportion is attributable to the dividend received from the rupee companies about which there is now no dispute. The proportionate amount attributable to the sterling companies is ₹ 57,689/-. As regards the item of ₹ 3,73,155-13-0 this is super tax paid by the plaintiffs in respect of the income received by them from the rupee companies (₹ 15,03,576/-) and the sterling companies (₹ 60,41,621/-) in all (₹ 75,45,197/-). Each of the rupee companies and the sterling companies had already paid super tax on their respective profits at the flat rate before before they paid their dividends to the plaintiffs. Section 18(3-D) of the Income Tax Act provides that an Income Tax officer, it he has reason to believe that a non resident shareholder would be liable to super-tax, may direct the principal officer of the company to deduct super-tax at the time of the payment of the dividend. Further under Section 18(3-E) it is the duty of such principal officer, even if he receives no direction to deduct super tax from the dividend payable to a non resident share holder, if the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a basis. In paragraph 3 the defendant pleads that - "The plaintiff company is the principal shareholder in all the rupee companies as well as the sterling companies referred to in paragraph 2 of the plaint. As such the plaintiff company controls the business and trade of all the said companies in British India. In any event the plaintiff company has sufficient interest in the capital and assets of the said companies employed in British India and in the trading operations of the said companies in British India to make it liable to Indian Income Tax in respect of income arising out of such trading operations." This pleas has not been developed, but is I believe disposed of hereafter in this judgment. The defendant denies that the sums paid by the plaintiffs were paid under any coercion or duress. He also denies that provisions of Explanation 3 to Section 4(1) of the Indian Income Tax Act are ultra vires of the legislative powers of the Central Indian Legislature as defined by the Government of India Act, 1935. Lastly, in paragraph 11 of the written statement there is this plea : "The plaintiff company has no cause of action. In any event the defendant will obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g raised although Sea Customs Duty is just as much revenue as Income Tax. However, the matter must be decided according to law. This particular section, except where it provide for its repeal, substantially re-enacts Section 8 of the Act of Settlement, 1781. This Section was enacted to prevent the Supreme Court in Calcutta from interfering with the East India Company's collection of land revenue. It has been retained in successive enactments and, in particulars, Section 106(2) of the Government of India Act, 1915. It will be noticed that it is only the exercise of the original jurisdiction of the High Court that is forbidden. The exercise of the appellate jurisdiction of the High Court is not forbidden. Had the offices of the Income Tax Officer been two miles south of where they are now and so outside the ordinary original jurisdiction of this Court (which extends only to the limited part of Calcutta which is bounded by the Circular Road and the river Hooghly but contains the business part) the present proceedings would have been started before a Sub-ordinate Judge in the Alipore Court which is in greater Calcutta and come to this Court to be dealt with on appeal without Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubt. It appears to me that the Appellate Tribunal, although one of the two members of it is a gentleman with judicial experience, must take the Act as they find it and not call it in question. Section 66 provides that within sixty days of the date on which he is served with a notice of an order under Section 33[4] the assessee or the Commissioner may require the Appellate Tribunal to refer to the High Court any question of law arising out of such order. I doubt whether the validity of Explanation [3] to Section 4 [1] [c] would arise out of the order. Moreover raising that question in a reference would present the Court with serious difficulties since it would not have evidence before it but only a statement of facts. If a constitutional question of this sort is to be raised it ought to be raised before a court which can bring every available fact before it to consider the matter in question in the proper way. From the decision of the High Court, as Section 66A [2] provides :- "An appeal shall lie to His Majesty in Council from any judgment of the High Court delivered on a reference made under Section 66 in any case which the High Court certifies to be a fit one for appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue" means. In 1781, when prohibition against the Supreme Court exercising original jurisdiction in matters concerning the revenue clearly meant income from land, but in 1935, when prohibition against the Supreme Court exercising original jurisdiction in matters concerning the revenue was first introduced into the Act of Settlement, revenue clearly meant income from land, but in 1935, when the same provision was substantially re-enacted, revenue, in view of the provisions of Sections 136 and 138 of the Act of 1935, would clearly include money derived from Income Tax. In the present case the plaintiffs say that the money they have paid as a result of the assessment and demand for Income Tax is demanded under an invalid provision of law and therefore the money is not money paid under the law but is an illegal exaction. If the money is not Income Tax money but an illegal exaction it is money to which the Government of India has no legal claim or legal right and in that event it is money which the Government of India ought to repay to the plaintiffs. Is such money revenue ? The Concise Oxford Dictionary defines "revenue" to be : "The states annual income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking powers as those given by the Act to the Federal Legislature : Section 316 of the Act. Section 99 [2] of the same Act provides : "Without prejudice to the generality of the powers conferred by the preceding sub-section, no Federal law shall, on the ground that it would have extra-territorial operation, be deemed to be invalid in so far as it applies - (a) to British subjects and servants of the Crown in any part of In dia; or (b) to British subjects who are domiciled in any part of India wher ever they may be; or (c) to, or to persons on, ships or aircraft registered in British India or any Federated State wherever they may be; or (d) in the case of a law with respect to a matter accepted in the Instrument of Accession of a Federated State as a matter with respect to which the Federal Legislature may make laws for that State, to subjects of that State wherever they may be; or (e) in the case of a law for the regulation or discipline of any naval, military or air force raised in British India, to members of, and persons attached to, employed with or following, that force wherever they may be." Section 100 provides that the Federal Legislature has power t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere anti-smuggling laws are made as related in Croft v. Dunphy. There may be other such cases. Such extra-territoriality would be of the kind and decree necessary to give efficacy to the legislation as it affected British India-small extensions for such purpose, perhaps into no-mans air or water, or perhaps by agreement with a neighbouring State into that State; all other valid extra-territorial legislation must come within Section 99(2)(a), (b), (c), (d) and (e). In Croft v. Dunphy Lord Macmillan said : "Where a power is conferred to legislate on a particular topic it is important in determining the scope of the power to have regard to what is ordinarily treated as embraced within that topic in legislative practice and particularly in the legislative practice of the State which has conferred the power." In Vol. 47 of the 2nd edition of Halsburys Laws of England which deals with England Income Tax law as at April 1, 1935, just before the Government of India Act, 1935, was passed, there is this statement of the English Income Tax Law, at page 11 : "The income arising abroad to non-resident is not within the charge to tax, and non-residents also enjoy specific exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hangeable, but it does lend some support to the view that where the British Government had refrained from extra-territorial legislation involving taxation of non-residents upon income received by them abroad, it did not in the absence of express enactment intend to confer such power upon the Indian Government by the Act of 1935. Extra-territorial legislation is apt to produce friction between States and this is certainly so where one State takes another States nationals as Lord Esher pointed out in Colquhoun v. Brooks. The reactions to the assessment and demand for tax might have been much different in the present case had the plaintiffs been an American Company instead of a British Company. The dividends in respect of which tax has been claimed and paid in the present case were all dividends declared abroad by foreign Companies with registered offices, head offices and share registers either in England or in the Isle of Man (and were payable and paid either in England or in the Isle of Man) to the plaintiffs, a company registered in the Isle of Man with its head office in England. The dividends concerned were therefore debts arising abroad and paid abroad by Companies resident ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven above, the legislation impugned is not authorised by any provision, either express or implied, of the Government of India Act, 1935, from which statute the legislature of British India in 1939 derived its powers. I am therefore of opinion that the impugned legislation was and is beyond the law-making powers of the Government of India and therefore invalid. Consequently the words "or are deemed to accrue or arise" in Section 4(1) of the Indian Income Tax Act and Explanation (3) thereof are of no legal effect. The Government of India were only able to obtain the money now claimed in this suit from the plaintiffs because they were in a position to treat, and intended to treat, plaintiffs as defaulter under the Income Tax Act and so collect the money with possible penalties under the provisions of Section 46 of the Act if the plaintiffs did not pay. The plaintiffs had good reason to believe that their property, i.e., the dividends from the rupee-companies in India, would be taken from them or from the companies that were due to pay money to them in India, if they did not yield to the Income Tax Officers illegal demand. In my view the plaintiffs were in the same position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intiffs in the present case would under protest have paid money from England in the way they did over four lakhs of rupees - or in English currency over 30,000 Pounds - to the Income Tax Officer in Calcutta but for the fact that the Income Tax Officer held threats of the Income Tax Act over their heads and the fear that he would use powers under Section 46 to take the plaintiffs money coming from the rupee company whether they liked it or not. Having found that the money now claimed was money paid by the plaintiffs to the Government of India as aforesaid as a result of a demand made under a law which the Government of India had no power to make and so an invalid law, I am of the opinion that the suit does not concern revenue in the sense used in Section 226, viz., legal revenue, and that therefore the provisions of Section 226 of the Government of India Act do not bar our jurisdiction. I am therefore of opinion that the plaintiffs are entitled to a declaration that the legislation impugned is invalid and to return of the money so paid, viz., ₹ 4,35,290-5-0 - money had and received - together with interest thereon at four per cent. per annum from the date of the notice of cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Indian Income Tax Act ? 3. Has this Court, in the exercise of its original jurisdiction power to entertain the suit in view of Section 226 of the Government of India Act, 1935 ? 4. Is Explanation (3) to Section 4 of the Income Tax Act ultra vires and legislature ? and 5. What relief, if any, is to be given to the company ? I would take up the fourth issue first. The charging provisions (Sections 3 and 4) of the Income Tax Act before its amendment by Act VII of 1939 were as follows :- A person whether residing in or outside British India in the relevant year, was chargeable only in respect of the income (a) which had arisen or accrued to him in the accounting year in British India or (b) which had been received by him in British India. In the case of a resident only income which had arisen or accrued outside British India was to be deemed, subject to some limitations, to have arisen or accrued to him if it was either received or brought into British India. A non-resident could not have been assessed to tax on income which had arisen or accrued outside British India or income received outside British India even though it may have subsequently been brought into Britis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vations of Fletcher-Moulton, L.J., in Gramophone and Typewriter Ltd. v. Stanley and of Lord Wrenbury in Bradbury v. English Sewing Cotton Co. The property of a person who may be the subject of another independent foreign State and may be a resident of such a State, and over whom the Indian Legislature has no jurisdiction is thus brought under the provision of a taxing statute enacted by the British Indian Legislature. Limiting Explanation (3) to the case of a non-resident, that explanation is a piece of extra-territorial legislation, not by a supreme or paramount legislature but by a subordinate legislature, which derives its authority from Parliament under the Government of India Act, 1935. The question is whether the explanation so far as it affects non-residents is ultra vires the Indian Legislature. The powers of the Indian Legislature during the transitional period are defined in Sections 99 and 100 of the Government of India Act, 1935. Item No. 54 of List I of the Seventh Schedule to that Act is "tax on income other that agricultural income." The subject accordingly falls within the field of legislation by the Indian Legislature. Under the Government of India Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lord Macmillan in Croft v. Dunphy be considered in its entirety it cannot be said that his Lordship was laying down by the observations at page 163 of the report, that every subordinate legislature can legislate with extra-territorial effect on the permitted subject just as the Imperial Parliament, for on the next page he observes that a statute violating International Law passed by the Imperial Parliament cannot be challenged as ultra vires in a domestic court but such a statute passed by a subordinate legislature can be challenged as ultra vires in a domestic court on the ground that the Imperial Parliament must not be taken to have granted the power to enact such a statute to a subordinate legislature. In the early part of judgment I have pointed out that Explanation (3) to Section 4 of the Indian Income Tax Act has the effect of drawing in income that may have accrued within the territories of another independent foreign State to a person who may be the subject of, and resident in, the territories of another independent foreign State. In my judgment the general principle is that a subordinate legislature can legislate only within its territorial limits (Macleod v. Attorney-Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision has extra-territorial effect, the principle being that the Sovereign Legislature gave the subordinate legislature such a power by necessary implication. The absurdity of limiting the power to legislate within the territorial bounds in such a matter is well expressed by the phrase "Imagine the navy confined to the three mile limit." The cases where the validity of laws of exclusion and expulsion passed by the Colonial or Dominion Legislature were considered also fellow within this category : (see Attorney-General for Canada v. Cain and Gilhula). The legislative practice in England in Income Tax matters is summarised at pages 27 and 35 of Lord MacMillans Report (Income-tax Codification Report of 1936). According to the legislative practice in England a person who is a resident in the United Kingdom is charged upon the whole amount of his profits and gains whether they arose from property in the United Kingdom or elsewhere. The word "elsewhere" which ordinarily would include the rest of the earth outside the United Kingdom was by judicial decisions given a limited meaning. A person who is now a resident in the United Kingdom is charged only in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of 1939, made the income of a resident taxable when the income had accrued, arisen or had been received in British India, or though arising out of British India, has been received or brought into British India within a certain time, but with regard to a non-resident he could be taxed only in respect of income which had accrued or arise in British India or which had been received there. The extending Section was Section 42. The legislative practice in India up to 1935 was not to assess a non-resident who had no business connection in British India, to Income Tax in respect of an income which had not arisen or accrued to him in British India or which had not been received by him in British India. Moreover the nature of the subject of legislation does not necessarily require any legislative provision of extra-territorial operation. I cannot therefore hold that the Indian legislature had been given by implication the power to legislate extra-territorially with regard to Income Tax matters. Explanation (3) to Section 4 is accordingly ultra vires to the extent it relates to a non-resident who does not fulfill the conditions of Section 42 in respect of his income which did not in fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Australian legislature. The majority of the Judges agreed with Dixon, J. In this view as to the scope of the Australian Statute no question of its having extra-territorial effect arises. The Statute was certainly intra vires, as the Australian legislature legislated on a subject which was within the territorial limits of Australia. Evatt, J., however, adopted the reasons which he had given in the earlier case, namely in Trustees, Executors and Agency v. Federal Commissioner of Taxation. In support of his view that the State legislature had power to legislate extra-territorially he gave four reasons : (i) that the Australian Commonwealth has full self-government and the Commonwealth Parliament has power to legislate extra-territorially, as such a power is an essential part of the conception of self-government; (ii) that Croft v. Dunphy had laid down that the Canadian Parliament had the powers of a full Sovereign legislature, and the observations made therein would apply to the Commonwealth Parliament of Australia; (iii) that the legislative powers of the States of the Australian Commonwealth regarding extent are the same as that of the Commonwealth Parliament; and (iv) that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Leaving out the case where income is not received in British India income of a non-resident is assessable in British India only if the income had accrued or had arisen in British India or is deemed to have arisen or accrued in British India. Explanation (3) to Section 4, which deals with dividend only, defines the circumstances under which a class of income actually arising or accruing outside British India is deemed to have arisen or to have accrued in British India. Section 42 which is not relevant to the case before us, for the assessment is not as an agent of the plaintiff company, also mentions the case where income would be deemed to have arisen etc., in British India. For the purpose of this issue we have to leave out those two cases, namely Explanation (3) to Section 4 and Section 42. We are to see, fiction apart, whether the income of the company derived from dividends paid by the sterling companies had in fact arisen or accrued in British India. The cases established the following proposition, namely :- "the situs of the income is the situs of the fund from which the income is directly derived, that is to say, in the case before us, the situs of the shares held b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken to be the place where the share register is kept, "for the evidence of title to shares is the share register". This is the view taken in Brassard v. Smith, and London and South American Investment Trust v. British Tobacco Co. Whichever view be accepted the situs of the shares which the plaintiff company had in the sterling companies would not be in British India but in England. The income in the shape of dividends paid by the sterling companies to the plaintiff company therefore arose or accrued not in British India but in England. The case of the Commissioner of Income Tax, Bombay v. Major Goldie is an authority directly on the point. The plaintiff company has assessed to Income Tax in British India in respect of those dividends on the basis of Explanation (3) to Section 4 of the Indian Income Tax Act, which made, by a fiction so to say, the income from those dividends, which in realty had arisen and accrued outside British India, to be income which had arisen or accrued in British India. The plaintiff company is accordingly entitled to challenge the legality of that explanation. Issue No. 2. - The second and third issues must be decided on the basis of the al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat tribunal are indicated in the section itself. He can object to the amount of his income as determined by the Income Tax Officer or to the amount of loss computed under Section 24 or the amount of the tax etc. He can also deny his liability to be assessed under the Act. That phrase to my mind mean that he can only urge before that tribunal that the provisions as they stand in the Act do not make him liable, i.e., exempt his income or a part of his income from assessment. He cannot urge there that though a provision of the Act makes his income or part thereof liable to be assessed, that provision is illegal, being ultra vires the Indian Legislature. The Appellate Assistant Commissioner would not be competent to entertain or decide that question. On the principle that the scope of an appeal cannot be enlarged but must be limited to points which were open for adjudication by the court or tribunal of first instance the Appellate Tribunal functioning under the Act, to which an appeal is taken under Section 33, would have no power to entertain the said question question and deal with it in its order. This court on a reference being made to it under section 66 cannot also deal with suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him was illegal. Section 39 of the Act II of 1886 which is couched exactly in the same terms as the first part of Section 67 was pleaded as a bar to the suit. The plea was overruled on the ground that if the questioned assessment was ultra vires that Section did not stand in the way of the plaintiff. This case was cited in Meyappa Chettiars case but was distinguished on two grounds : (1) that the Act of 1886 contained no provision corresponding to the second part of the Section 67, and (2) the said Act did not provide the same safeguards, as in the act of 1922, by way of appeal and reference to the High Court with a further right of appeal to the Privy Council. In my judgment Haji Rahamatullas case cannot be put aside on these grounds of distinction. The second part of the Section 67 deals with a different subject altogether. The Act of 1886 contained provisions for revision, firstly to the Collector, and then to the Commissioner of the Division. There was no doubt no provision for a reference to the High Court and for further appeal to the Privy Council, but in my judgment the scope of a private provision like that contained in Section 39 of Act II of 1886 or in the first part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts the same view. In that case a large body of shop-keepers of Malegaon filed a suit against the Secretary of State for India for a declaration that a certain notification issued by the District Magistrate, by which compensation for damage caused at a riot and the costs of additional police for keeping order were to be recovered, was illegal and for injunction. A notice under Section 80 of the Code of Civil Procedure was given, but the suit was filed before the expiry of two months from the date of that notice. The Secretary of State raised three substantial questions : (1) that Section 4(f) on the Bombay Revenue Jurisdiction Act (Act X of 1876) barred the suit, (2) that the suit having been instituted before two months of the notice given under Section 80 of the Civil Procedure Code was premature, and (3) the challenged notification was a valid one. The trial court gave effect to all the three contentions and dismissed the suit. On appeal the Judges of the Bombay High Court were divided on the question as to whether notice under Section 80 of the Code of Civil Procedure was required, the suit being for injunction. Both of them held that the notification was perfectly valid, but t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment was not outside but under the Income Tax Act and the suits challenged the correctness of findings on points which the Income Tax Officer was competent to determine. In Secretary of State for India v. Mask & Co. a case which concerned customs duties, the plaintiff contended that the goods which he had imported were of a different description from what the Customs authorities took them to be and so the proper duty payable was at a lower rate. That case is also of the same type as the first mentioned case. In the suit before us Section 67 is of no avail to the defence as the suit is not for setting aside or modifying an assessment made under that Act. It is a suit for a declaration that the assessment is unauthorised by the Act and outside the Act as it ought to stand after Explanation (3) to Section 4 is struck out on the ground that it is ultra vires the legislature. I would accordingly answer this issue in favour of the plaintiff. Issue No. 3. - For deciding the third issue the provisions of Section 226 of the Government of India Act, 1935, have to be considered. It is a section which still stands in the statute book in spite of the fact that the historical reasons for the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The first case is the case of Spooner v. Juddow. The act that was done there was an attempt to collect quit rent due to the East India Company by executing a distress warrant. It could not be justified in law, for the distress warrant issued against one person was executed against another and for a liability whip was not fully the liability of the latter. A suit for damages was brought against the Govt., agent who had executed the said warrant. The main defence was that the suit was not maintainable in view of the provision is of sustain 9 of 37 EGO. III, c. 142, which was in the seams terms as Section 226 of the Government of India Act, 1935. In reversing the judgment of the Bombay High Court the Judicial Committee of the Privy Council pointed out that the case cannot be decided on the plain language of the Section. For if the act done was strictly in accordance with law, the Section would be redundant, the Section was accordingly interpreted in the manner which I have indicated above. The cases of Messrs. Best & Co. v. The Collector of Madras Gobindarajulu Naidu v. Secretary of State for India Thin Yen v. Secretary of State for India Dewarkhand Cement Co. Ltd. v. Secretary of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject matter of this suit concerns revenue. If it does, the suit would be barred, otherwise not. In my judgment on the plaintiff company is or can be called revenue in the popular sense or the defendant gives it that designation. Revenue is that which the State collects from the subject or from the possessions of the State for the purpose of carrying out its administrative and governmental duties. In the first mentioned case it involves the right to levy form the subjects. If the right does not exist in respect of a particular matter, what is assessed or collected would not in my judgment be considered AAC revenue within the meaning of Section 226, although the name of a tax may be given to it. Without a valid act on the part of the State, what is callef or designated by its as revenue cannot be revenue. In this view of the matter I agree with the concession that was made by the Advocate-General. Bombay, in Byramjee Jeebhoy v. Province of Bombay, that Section 226 of the Government of India Act contemplates a "valid revenue," and with the observation of Beaumont. C., that "before the Section (226) can apply, however, we must determine that the tax which is challenge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The plaintiff Company held shares in the sterling companies, i.e., invested money in the sterling companies. In order to obtain an income, the sterling companies had to do business-the shares would not of themselves earn any income. Therefore the income came through the business operations of the sterling companies carried on in India. The profits of the sterling companies became the subject matter of taxation in British India and were taxed and thereby impressed, as it were, with a label that they were something which had arisen or accrued in British India. The dividends were paid out of those profits. It is normally to be expected that dividends will be declared when profits are made; the profits of the sterling companies constituted the income of the shareholders, though at that stage inchoate. The resolutions of the Boards of Directors declaring dividends did not produce the income; they merely released it. This release was merely the last stage in the process of accrual. This agreement implies that the income of the Company is in fact the income of the share-holders and that the company is merely the channel through which that income is received. It also implies that money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on consideration is essentially different from those on which provision such as those in Section 67 of the Income Tax Act are based. The jurisdiction of the Civil Courts is excluded by Section 67 of the Income Tax Act and by similar Section in other statutes because under those statutes other tribunals have been established to give the necessary relief to aggrieved parties. But Section 226 of the Government of India Act operates whether the aggrieved person has or has not a remedy under the particular Act, indeed, the very wording of the Section indicates that there may be instances when an aggrieved person will have a remedy in Civil Courts if the cause of action arises outside the territorial limits of the original jurisdiction of the High Court but will have no such remedy if the case of action arises within those limits. For these reasons it seems to me that no assistance to the undertaking of the provisions of this Section can be obtained for the reasoning given in decisions as to the applicability of such provisions as Section 67 of the Income Tax Act. Section 226(1) of the Government of India Act, 1935, reads as follows :- "Until otherwise provided by the act of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory duty would not be the exercise of "original jurisdiction in any matter concerning the revenue", and the latter part of the clause need not be considered, for the proceedings in this case had not to do with the collection of the revenue, but with the preliminary assessment to ascertain what that revenue was." This decision emphasizes the distinction between two parts of Section 226 (1) of the Govt., of India Act, 1936, and suggests that if the statutory duty in question has to do with the collect of the revenue, and not merely with the preliminary assessment, the power of the High Court to issue a direction to a revenue officer to perform that duty may possibly be excluded by this Section. But so far as the first part of the Section is concerned, this decision does not suggest that any special or limited interpretation is to be placed on the words any original jurisdiction in any matter concerning the revenue : the decision merely lays down that the issue of an order to a revenue officer to perform his statutory duty of stating a case is not exercise of original jurisdiction in a matter concerning the revenue. In Dayaldas Kushiram v. The Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. The Income Tax authorities assess the incomes in question, demand payment of the tax. Realism the same and appropriate the money to the revenue of the country. The questions in issue are-Has the Indian Legislature the power to tax these incomes ? Can the Indian revenue be increased in this manner ? Is the amount realised from the plaintiff, which has been claimed as revenue, realised as revenue, and treated as revenue, to continue to be so treated or is it to be deducted from the funds claimed by the Government as its revenue and refunded to the plaintiff. It seems to me that if the ordinary meaning is to attic to the words "any matter concerning the revenue" then all these questions are matters occurring the revenue. In other words, a decision that something is not valid revenue concerns the revenue as much as a decision that it is valid revenue. The argument that Section 26 is a bar only to the exercise of jurisdiction in matters concerning valid revenue seems to me to conflict with the principle laid down in Spooner v. Juddow 1(1845-51) 4 M.I.A. 33. The same argument would apply to cases where the revenue officer misunderstood the valid provisions of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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