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TMI Blog1965 (10) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... RAMASWAMY., K. SUBBA RAO., K. N. WANCHOO., J. C. SHAH., S. M. SIKRI S.T. Desai, Senior Advocate (K.R. Venkatram and S. Venkatakrishnan, with him), for the appellant. A. Ranganadham Chetty, Senior Advocate (A.V. Rangam, with him), for the respondent. JUDGMENT [The judgment of SUBBA RAO, WANCHOO and SIKRI JJ. was delivered by SUBBA RAO J. The judgment of SHAH and RAMASWAMI JJ. was delivered by SHAH J.]. SUBBA RAO J.--- This appeal by certificate raises the question whether a suit for the refund of sales tax assessed under a provision of the Madras General Sales Tax Act, 1939 (IX of 1939), declared to be ultra vires the powers of the State Legislature would lie. The appellants are a private company incorporated under the Indian Companies Act. They carry on the business of building contractors. During the years 1948-49 to 1952-53 they were assessed to sales tax by the State of Madras on the basis that the contracts executed by them were "works contracts". On April 5, 1954, the High Court of Judicature at Madras held in Gannon Dunkerley and Co. v. State of Madras that the relevant provision of the Madras General Sales Tax Act empowering the State of Madras to asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), of the Madras General Sales Tax Act, 1939, hereinafter called the Act, read with rule 4(3) of the Turnover and Assessment Rules, so far as relevant to indivisible works contracts, were held by this court to be without legislative competence and, therefore, wholly void; that section 18A of the Act does not bar a suit for the recovery of tax assessed under the said ultra vires provisions. (2) Section 18A of the Act was introduced by the Amending Act of 1951 (6 of 1951), which came into force on April 20, 1951, and, therefore, in any event the suit would be maintainable in respect of refund of amounts paid towards sales tax for a period before the said date. And (3) the suit is not barred by limitation, as article 96 of the Limitation Act governs the said suit and in terms of the said article the appellants had filed the suit within three years from the date they had knowledge of the mistake whereunder they paid the amounts. The arguments of Mr. A. Ranganatham Chetty, learned counsel for the respondent, may be briefly put thus : On a fair reading of the provisions of section 18A of the Act it should be held that a suit to set aside or modify an assessment made under the machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessments were illegal, unconstitutional and were without any jurisdiction, as the plaintiffs were not dealers as defined in the Act. In paragraph 9 thereof they referred to the decision of the Madras High Court in Gannon Dunkerley and Co. v. State of Madras and stated that they came to know of their mistake on April 5, 1954, when the Madras High Court delivered the judgment in that case. It is, therefore, clear from the plaint that the appellants stated that they entered into building contracts with the State on a lump-sum basis and that the assessments made in respect of those contracts were unconstitutional and without jurisdiction, in view of the decision of the Madras High Court in Gannon Dunkerley and Co.'s case. There were clear averments in the plaint that the contracts were indivisible building contracts. In the written statement, the State did not deny that they were indivisible building contracts; indeed, it assumed that the said contracts were covered by the decision of the Madras High Court in Gannon Dunkerley and Co.'s case but stated that the said decision required reconsideration and that the matter was pending in appeal before this court. Issue (1) framed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or other valuable consideration provided that the proceeds of the sale by a person of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover. Explanation 1.---Subject to such conditions and restrictions, if any, as may be prescribed in this behalf---- (i) the amount for which goods are sold shall, in relation to a works contract, be deemed to be the amount payable to the dealer for carrying out such contract, less such portion as may be prescribed of such amount, representing the usual proportion of the cost of labour to the cost of materials used in carrying out such contract." Rule 4(3) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, reads : " For the purpose of sub-rule (1), the amount for which goods are sold by a dealer shall, in relation to a works contract, be deemed to be the amount payable to the dealer for carrying out such contract less a sum not exceeding such percentage of the amount payable as may be fixed by the Board of Revenue, from time to time for different areas, representing the usual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made clear by this court in Pandit Banarsi Das Bhanot v. State of Madhya Pradesh, which was decided on April 3, 1958, wherein, in the context of similar provisions in the Central Provinces and Berar Sales Tax Act, 1947, it held that in a building contract there was no sale of materials as such and that, therefore, it was ultra vires the powers of the Provincial legislature to impose tax on the supply of materials. We, therefore, hold that this court in Gannon Dunkerley and Co.'s case held that the said provisions of the Madras General Sales Tax Act, 1939, in so far as, they enabled the imposition of tax on the turnover of indivisible building contracts, were ultra vires the powers of the State legislature and, therefore, void. If the said provisions to the extent indicated are ultra vires the State legislature, the next question is whether a suit for the refund of the amounts paid in respect of assessments made under the said ultra vires provisions is maintainable. The sheet-anchor of the arguments of the learned counsel for the respondent is the decision of the Judicial Committee in Raleigh Investment Co.'s case. Before we consider the scope of the said decision, it will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies were incorporated in England and the others in the Isle of Man, and while their businesses in India were managed by local bodies, the ultimate control lay with the London Boards. All the dividends received by the appellantcompany from the nine companies were declared, paid and received in England : no part of them was ever remitted to British India. The appellant was assessed in respect of income-tax and super-tax for the relevant years as a non-resident on an income which included the dividends received from the nine companies. The appellant paid the tax under protest and instituted a suit in the High Court at Calcutta in its ordinary original civil jurisdiction claiming a declaration that in so far as Explanation 3 and the other provisions of section 4 of the Indian Income-tax Act, 1922, as amended in 1939, purported to authorise the assessment and charging to tax of a non-resident in respect of dividends declared or paid outside British India but not brought into British India, those provisions were ultra vires the legislature, and that the assessment was illegal and wrongful. The judicial Committee held that section 67 of the Act was a bar to the maintainability of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicial Committee to the said machinery provided under the said Act. Is this assumption correct ? If not, as the judicial Committee itself realised, the construction put upon section 67 of the Income-tax Act would not also be correct. Before we scrutinise the correctness of the reasons given by the Judicial Committee, we shall briefly notice the decisions of the Privy Council and of this court wherein the said decision was considered, as Mr. Ranganadham Chetty contended that the entire reasoning of the Privy Council was either expressly or impliedly accepted by the said decisions. The Judicial Committee in Commissioner of Income-tax v. Tribune Trust had to deal with a case where an assessment was made by the income-tax authority in regard to an income which was exempt on the ground that it was derived from property held under trust wholly for charitable purposes. It held that the assessments of the Income-tax Officer, who had jurisdiction to decide whether the said income was exempt from the relevant provision and who had held that the said income was not exempt and on that basis made the assessments, were not a nullity. In coming to that conclusion the Judicial Committee found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the suit. That section read : " No suit shall be brought in any civil court to set aside or modify any assessment made under this Act, and no prosecution, suit or other proceeding shall lie against any officer of the Crown for anything in good faith done or intended to be done under this Act." Relying upon the decision in Raleigh Investment Company's case it was contended that the said section was a bar against the maintainability of the suit. The authority of the said decision, as Fazl Ali J. pointed out, was not questioned before this court. But the court by majority held that the suit was maintainable and distinguished Raleigh's case on the ground that the suit was not to set aside or modify the assessment. The proposition laid down by the Judicial Committee in Raleigh's case, namely, that the machinery provided by the Act should be followed even when the contention of the assessee was that the impugned Act or any provision thereof was ultra vires, would equally apply whether the suit was instituted before the assessment was made or thereafter. To the extent this court held that such a suit would lie before the assessment was made for an injunction restraining the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se that point before the taxing authority and take it for a decision before the High Court under section 66(1) of the Act. It is not necessary for us to consider whether this assumption is well-founded or not." The correctness of the said assumption falls to be considered in the present case. In this case this court applied the decision in Raleigh's case only to a situation where the sales tax authority was said to have included in the turnover certain transactions which he should not have included therein. In Kalwa Devadattan v. Union of India the sons of one Nagappa, whose joint family had been assessed to income-tax, filed a suit for a declaration that the assessment orders were unenforceable against the property attached and that the sale of the property by the revenue authorities was without jurisdiction for the reason that the said item did not belong to the joint family but was their separate property. This court held that section 67 of the Income-tax Act barred a suit in so far as it sought to set aside the assessment. This was also a case where the plaintiffs sought to set aside the order of assessment on the ground that it was vitiated by an error. This court again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islature, which owes its existence itself to the Constitution, the intention of affording protection to unconstitutional activities by limiting challenge to them only by resort to the special machinery provided by it in place of the normal remedies available under the Code of Civil Procedure, that is, to a machinery which cannot be as efficacious as the one provided by the general law. Such a construction might necessitate the consideration of the very constitutionality of the provision which contains this expression. This aspect of the matter does not appear to have been considered in Raleigh Investment Co.'s case." These observations by this court clearly question the correctness of the decision in Raleigh's case in so far as it held that section 67 of the Income-tax Act was a bar to the maintainability of a suit, even if an assessment was made on the basis of a provision which was ultra vires the Constitution. Though in a sense it may be said that the said observations are in the nature of obiter, they are the considered views of this court. The decision in Raleigh's case was again considered by a Bench of this court in Kamala Mills Ltd. v. State of Bombay . There the sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have considered these decisions in some detail as it was contended that the present question was finally decided by some of the decisions of this court. But a perusal of the judgments discloses that the said question, namely, whether a suit would lie when an assessment was made on the basis of a provision which was ultra vires the Constitution, was left open and indeed in one of the decisions clear observations were made questioning the correctness of the decision of the Privy Council in so far as it held that a suit would not be maintainable even in such a case. The question left open directly calls for a decision in this appeal. Let us now scrutinize the said machinery to ascertain its scope and ambit. Section 3 of the Income-tax Act is the charging section; it Imposes a tax upon a person in respect of his income. As a learned author pithily puts it, " section 3 charges total income; section 4 defines its range ; section 6 qualifies it ; and sections 7 to 12B quantify it. " Section 23 empowers the income-tax Officer to assess the said total income in the manner prescribed thereunder. His jurisdiction is confined to the ascertainment of the total income of a person in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may pass such orders as are necessary to dispose of the case conformably to such judgment. It has been held by this court that the jurisdiction conferred upon the High Court by section 66 of the Income-tax Act is a special advisory jurisdiction and its scope is strictly limited by the section conferring the jurisdiction. It can only decide questions of law that arise out of the order of the Tribunal and that are referred to it. Can it be said that a question whether a provision of the Act is ultra vires of the legislature arises out of the Tribunal's order ? As the Tribunal is a creature of the statute, it can only decide the dispute between the assessee and the Commissioner in terms of the provisions of the Act. The question of ultra vires is foreign to the scope of its jurisdiction. If an assessee raises such a question, the Tribunal can only reject it on the ground that it has no jurisdiction to entertain the said objection or decide on it. As no such question can be raised or can arise on the Tribunal's order, the High Court cannot possibly give any decision on the question of the ultra vires of a provision. At the most the only question that it may be called upon to decide is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al position thus : " 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, means 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 also 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 and deal with it in its order. This court on a reference being made to it under section 66 cannot also deal with such a question, as the refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that it offended the fundamental rights guaranteed under the Constitution. The reason is simple, because neither the department nor the Tribunal can give relief to the assessee holding that the impugned provision is in any way bad in law. If such a contention were to be raised, it has necessarily to be ignored by the department and the Tribunal, though sometimes the Tribunal does refer to the question, if raised, and gives the only answer which it can, namely, that that is not a matter within its competence to decide ... We wish to make it very clear that it is not the province of the department or even the statutory tribunal, which is really the creation of the statute, to entertain any objection to a piece of legislation as being ultra vires or unconstitutional, and that it would be beyond the jurisdiction of this court, functioning under section 66 of the Act, which, as stated already, is narrow in its scope and reach, to consider and determine a question not properly within its sphere." We agree with the said observation. There is, therefore, weighty authority for the proposition that a tribunal, which is a creature o a statute, cannot question the vires of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t" refers both to procedural and substantive provisions of the Act. As the relevant part of the charging section was held to be ultra vires, we hold that section 18A is not a bar to the maintainability of the present suit. The next argument of the learned counsel is that if we give a narrow construction to section 18A of the Act, which found favour with the Judicial Committee, the said section would be ultra vires of the powers of the State legislature. As the State legislature has no legislative power to impose a tax in respect of indivisible works contracts, the argument proceeds, it cannot indirectly confer on a sales tax authority power to impose a tax on such a transaction and impose a bar against the maintainability of a suit to question its validity. This certainly raises an important question : but, in the view we have expressed on the construction of section 18A of the Act, this does not fall for our decision in the present appeal. Lastly, it is contended that the suit is not barred by limitation. The City Civil Court judge held that the suit was governed by article 62 of the Limitation Act and, on that basis, declared that the suit for the recovery of the amounts that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... February 2, 1954, Rs. 36,320-1-11 as tax. Thereafter the appellants came to learn that on April 4, 1954, the Madras High Court in Gannon Dunkerley Co. v. State of Madras had held that in a building contract there is no element of sale of the materials for a price stipulated, and the turnover received from building contracts was not taxable under the Madras General Sales Tax Act. They, therefore, on March 23, 1956, instituted in the City Civil Court at Madras, Suit No. 2272 of 1955 for a decree for refund of tax levied and collected by the sales tax authorities for the years 1948-49 to 1952-53. The State of Madras resisted the claim contending that the suit was barred under section 18A of the Madras General Sales Tax Act and in any event by the law of limitation. The trial court dismissed the suit, and the High Court of Madras confirmed the decree. With certificate granted by the High Court of Madras, the appellants have appealed to this court. The orders of assessment made by the Deputy Commercial Tax Officer are not on the record, nor are the contracts which gave rise to the turnover. It was assumed in the trial court and the High Court that the appellants had entered into wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in the course of trade or business for cash or for deferred payment or other valuable consideration and includes also a transfer of property in goods involved in the execution of a works contract, but does not include a mortgage, hypothecation, mortgage or pledge; . . . " Section 2(i) defined "turnover" as meaning the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valuable consideration provided that the proceeds of the sale by a person of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover. Explanation (1)(i) to the definition of "turnover" provided : " Subject to such conditions and restrictions, if any, as may be prescribed in this behalf--- (i) the amount for which goods are sold shall, in relation to a works contract, be deemed to be the amount payable to the dealer for carrying out such contract, less such portion as may be prescribed of such amount, representing the usual proportion of the cost of labour to the cost of materials used in carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, which dealt with computation of gross turnover, provided that the amount for which goods are sold by a dealer shall, in relation to a works contract, be deemed to be the amount payable to the dealer for carrying out such contract less a sum not exceeding such percentage of the amount payable as may be fixed by the Board of Revenue, from time to time for different areas, representing the usual proportion in such areas of the cost of labour to the cost of materials used in carrying out such contract, subject to the maxima set out therein in respect of different classes of building contracts. Counsel for the appellants contended that this court in State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., while affirming the decision of the High Court of Madras in Gannon Dunkerley and Company's case has held that the provisions of the Madras General Sales Tax (Amendment) Act (25 of 1947), which incorporated in the definition in section 2(h) the words "and includes also a transfer of property in goods involved in the execution of a works contract" and incidental changes in the definition of "turnover", were ultra v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a building contract which is one, entire and indivisible, there is no sale of goods and the Provincial legislature was incompetent under entry 48 to impose a tax on the supply of materials used in such a contract treating the supply as a sale. In the very elaborate discussion, which Venkatarama Ayyar J., speaking for the court, entered upon, at no stage did he express the opinion that any part of the definition of "sale" in section 2(h) after it was amended by the Madras General Sales Tax (Amendment) Act 25 of 1947 was ultra vires the legislature, and the observations made clearly indicate a contrary conclusion. The learned judge, in summing up his conclusion, observed at page 425 : "....the expression 'sale of goods' in entry 48 is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In a building contract, which is, as in the present case, one, entire and indivisible----and that is its norm, there is no sale of goods, and it is not within the competence of the Provincial legislature under entry 48 to impose a tax on the supply of the materials used in such a contract treating it as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of contracts which are single and indivisible and and not of contracts which are a combination of distinct contracts for sale of materials and for work, and that nothing .... in this judgment shall bar the sales tax authorities from deciding whether a particular contract falls within one category or the other and imposing a tax on the agreement of sale of materials, where the contract belongs to the latter category." In State of Madras v. Gannon Dunkerley and Company (Madras) Ltd., the court declared that the taxing authority may not, in computing the turnover of a dealer, include any part of the receipts under a works contract 'which is one, entire and indivisible, because the State legislature had no power to levy tax on transactions which are not transactions of sale of goods. But the court did not declare the clause added by Act 25 of 1947 as ultra vires : it merely directed that in the assessment of turnover from building contracts, restriction on the legislative power inherent in entry 48 of List II, Schedule VII, ought to be imported, and that the taxing authority must on that account determine whether the transaction of sale, turnover whereof is sought to be taxed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to no other. The question is thus one of construction and unless the Act is to be regarded as wholly meaningless and ineffective, the court is bound to construe the word 'property' as referring only to those forms of property with respect to which the legislature which enacted the Act was competent to legislate, that is to say, property other than agricultural land...... The court does not seek to divide the Act into two parts, viz., the part which the legislature was competent, and the part which it was incompetent, to enact. It holds that, on the true construction of the Act and especially of the word 'property' as used in it, no part of the Act was beyond the legislature's powers. There is a general presumption that a legislature does not intend to exceed its jurisdiction ...... and there, is ample authority for the proposition that general words in a statute are to be construed with reference to the powers of the legislature which enacts it." After referring to a number of cases cited at the Bar, the learned Chief Justice observed : " If the restriction of the general words to purposes within the power of the legislature would be to leave an Act with nothing or next to no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and the restrictions upon the power of the legislature which enacted it. There are diverse provisions in the Act which restrict the power of the taxing authorities to levy tax on sale or purchase of goods. For instance, section 4 expressly enacts that the provisions of the Act shall not apply to the sale of electrical energy, motor spirit and manufactured tobacco and of any other goods on which duty is or may be levied under the Madras Abkari Act, 1886, the Madras Prohibition Act, 1937, or the Opium Act, 1878. Exemption is also granted in certain cases by section 5 of the Act and authority is conferred by the Act upon the executive Government to make exemptions from or reductions in rates in respect of tax payable on the sale of any specified classes of goods or by any specified classes of persons in regard to the whole or any part of their turnover. These restrictions upon the power of the taxing authorities are imposed expressly by the statute itself : the other restrictions, to which we have already referred, are restrictions which are implied by the constitutional limitations. But on that account there is no real difference between the quality of the restrictions. The definit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harging section applies, it is impossible to escape the conclusion that all questions pertaining to the liability of the dealers to pay assessment (tax) in respect of their transactions are expressly left to be decided by the appropriate authorities under the Act as matters falling within their jurisdiction. Whether or not a return is correct; whether or not transactions which are not mentioned in the return, but about which the appropriate authority has knowledge, fall within the mischief of the charging section; what is the true and real extent of the transactions which are assessable; all these and other allied questions have to be determined by the appropriate authorities themselves; ...... the whole activity of assessment beginning with the filing of the return and ending with an order of assessment, falls within the jurisdiction of the appropriate authority and no part of it can be said to constitute a collateral activity not specifically and expressly included in the jurisdiction of the appropriate authority as such." The Deputy Commercial Tax Officer had, therefore, jurisdiction to determine whether the particular transactions in respect of which tax was sought to be levi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lles J., viz., 'Where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it'." In Firm of Illuri Subbayya Chetty Sons v. State of Andhra Pradesh a person who had paid tax under the Madras General Sales Tax Act, 1939, for the years 1952-54, under voluntary returns on the assumption that certain transactions of purchase of groundnuts were taxable, filed a suit in the civil court for recovery of the tax paid. The trial court decreed the suit, but the High Court reversed the decree and dismissed the suit, holding that it was not maintainable. It was observed by this court in appeal by the taxpayer at page 760 : "The fact that the order passed by the assessing authority may in fact be incorrect or wrong does not affect the position that, in law, the said order has been passed by an appropriate authority and the assessment made by it must be treated as made under this Act. Whether or not an assessment has been made under this Act will not depend on the correctness or the accuracy of the order passed by the assessing authority "; and at page 761 : ". . there can be no doubt that where an ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion of this court in the Bengal Immunity Company's case, to be erroneous. But on that account it could not be said that the order passed by the Sales Tax Officer was without jurisdiction. The suit for recovery of the tax already paid, pursuant to an order of assessment which had become final, was, therefore, held not maintainable. The principle of Kamala Mills' case in our judgment governs this case. In the present case the validity of the orders of assessment is challenged on the ground that the transactions which were held taxable were not such works contracts as would be within the taxing power of the Province under entry 48 in List II of Schedule VII to the Government of India Act, 1935. The taxing authority being of the view that they were taxable charged the turnover to tax. Appeals lay against the decisions of the taxing authority, but they were not filed in respect of four out of the five years and in the remaining only the question as to the quantum of turnover was raised. In the case of Kamala Mills the transactions were, it was apparently claimed, sales falling within the meaning of article 286(1)(a), Explanation, and not taxable by the State in view of a constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Madras v. Gannon Dunkerley Company (Madras) Ltd. In our view the suit to set aside or modify an assessment made on the assumption that the definition was wholly valid was not maintainable. Two grounds are urged in support of the plea that the suit was maintainable : (a) the taxing authority acting in exercise of powers conferred by a statute cannot entertain a plea that a part of the statute is invalid : he must take the statute as he finds it; and (b) that the authority conferred by the Act is to levy tax on transactions which are made taxable by the Act, and if the charging provision or a part thereof is ultra vires the legislature which enacted it, the decision of the taxing authority to tax transactions under that ultra vires provision is outside the Act. A taxing authority is undoubtedly a creature of the statute under, which he is appointed but ordinarily by the statute he is invested with authority to decide all questions which have a bearing on the taxability of a transaction. He is entitled to decide that the transactions submitted to his scrutiny are taxable. When the taxing authority levies tax on a transaction, he holds either expressly or by the clearest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial sanctity in that question, that the taxing authority cannot determine it. It could not be intended that when a question about the vires of a statute, which the taxing authority has to administer arises, he must deliberately adjudicate upon the taxability of a transaction contrary to his own conviction. There is nothing in our view, certain contrary casual observations in cases referred to at the bar notwithstanding, which compels him to adopt an unjudicial attitude. A quasi-judicial authority is within the definition of "State" in article 12 of the Constitution. That is so held in Parbhani Transport Cooperative Society Ltd. v. Regional Transport Authority, Aurangabad and assumed in Basheshar Nath v. Commissioner of Income-tax and K. S. Ramamurthy Reddiar v. Chief Commissioner, Pondicherry and in other cases. Is a quasi-juidicial authority deliberately to violate fundamental rights of a citizen who is subjected to his jurisdiction and to act in a manner transparently unjust because for some vague reason it is said that within the amplitude of his jurisdiction is not included the right to determine whether a part of the statute he is called upon to administer is ultra vires ? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty under the Central Provinces Municipalities Act was raised. Other cases which support the jurisdiction of the High Court and therefore of the taxing authorities to entertain and consider the plea that a part of the statute is ultra vires are Administrator-General, Lahore Municipality v. Daulat Ram Kapur : Chatturam v. Commissioner of Income-tax : Kamakhya Narain Singh v. Commissioner of Income-tax. We do not propose to refer to other cases (and they are many) except one in which the judicial Committee considered the argument whether, in a reference under the Income-tax Act, a plea of the vires of a statute which the taxing authority has to administer may be considered. In Raleigh Investment Company Ltd. v. Governor-General in Council the basic facts were closely parallel to the facts of this case. A joint stock company having its main office in England was assessed to income-tax and super-tax as a non-resident on income which included dividend income received from companies some of which were incorporated in England and others in the Isle of Man, and carrying on business in British India. The company paid the tax assessed, and instituted a suit in the High Court of Calcutta cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting as such. The circumstance that the assessing officer has taken into account an ultra vires provision of the Act is in this view immaterial in determining whether the assessment is 'made under this Act'. The phrase describes the provenance of the assessment : it does not relate to its accuracy in point of law. The use of the machinery provided by the Act, not the result of that use, is the test." Their Lordships then examined the consequences which would ensue if the contentions raised by the appellants were accepted, and proceeded to state: " All questions of law affecting the accuracy of an assessment might therefore be raised in proceedings in any civil court, where reliance was sought to be placed on the assessment. The section on the appellant's construction is robbed of all practical content. Second, on the appellant's construction, in order to ascertain whether a civil court is barred by the section from reviewing an assessment brought before it, the legal merits of the assessment have first to be considered and decided. For if the assessment is determined to be right in law, the jurisdiction of the civil court to entertain the suit is excluded. The assessment is, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 142A of the Government of India Act, 1935, was illegally levied. The municipal committee pleaded that the suit was barred by section 48 of the Central Provinces Municipalities Act, 1922. It was held by this court that the tax recovered could be ordered to be refunded because it was in excess of the limit prescribed by the Constitution. Counsel for the municipal committee urged for the first time in this court, relying upon Raleigh Investment Company's case, that the Central Provinces Municipalities Act contains adequate machinery dealing with refund of taxes and that the provisions of section 85(2) barred an action for recovery of tax wrongfully recovered by the municipal committee. It was held by this court that the Act does not set up machinery for entertaining a claim for refund or repayment in cases of the nature before the court, and that no finality was apparently given to the decision rendered by an authority under section 83 refusing to refund a tax improperly or illegally assessed or recovered. Dealing with Raleigh Investment Company's case it was observed : "But, with respect, we find it difficult to appreciate how taking into account an ultra vires provision wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for assessment of tax, the applicant raised no question of vires of section 3 of the Income-tax Act, and a, reference under section 66 of the Act was answered by the High Court. Thereafter in a petition under article 226 of the Constitution he challenged the validity of the assessment on the ground that the discretion given to income-tax department to assess members of an association separately or collectively as an association infringed the guarantee of equal protection of laws. The High Court of Madras in considering the plea that there was a bar of res judicata observed that the Income-tax Tribunal was incompetent to entertain a plea about the vires of the statute under which it functioned. But beyond observing at page 151 "we wish to make it very clear that it is not the province of the department or even the statutor tribunal, which is really the creation of the statute to entertain any objection to a piece of legislation, as being ultra vires or unconstitutional . . . ", nothing else was stated. It was submitted that this court in State of Tripura v. Province of East Bengal has refused to accept Raleigh Investment Company's case as correctly decided. In the State of Tripu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which ensures such a result may be rendered nugatory by permitting an injunction to be claimed against the Provincial Government or the State. The question whether a suit to obtain refund of tax based on a provision of a statute alleged to be ultra vires was maintainable did not fall to be determined in State of Tripura's case, and was not decided. In our view, the authority of the taxing officer is derived from the investment of power under the Act which he is authorized to administer. If there is no defect in the enactment of a taxing statute, in so far as it authorises the constitution of a tribunal, the tribunal invested with authority in the matter of assessment and collection of tax, would in our judgment have power to entertain an objection and to decide whether a provision of the Act which it is called upon to administer is ultra vires and hence unenforceable. The Deputy Commercial Tax Officer had therefore power to assess the transaction of sale in works contracts Assuming that he erred in the interpretation of the contract or the relevant statutory provision, the order was on that account not without jurisdiction. It could only bet set aside by appropriate proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X
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