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PETITIONER: KARIMTHARUVI TEA ESTATE LTD.

       Vs.

RESPONDENT: STATE OF KERALA

DATE OF JUDGMENT: 15/12/1965

BENCH: SATYANARAYANARAJU, P. BENCH: SATYANARAYANARAJU, P. GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N. HIDAYATULLAH, M. RAMASWAMI, V.

CITATION:  1966 AIR 1385            1966 SCR  (3)  93  CITATOR INFO :  F          1968 SC1213  (8)  F          1980 SC 251  (6)  R          1987 SC1217  (9)

ACT: The Kerala Surcharge on Taxes Act (11 of 1957), s. 2-Whether applicable to the assessment year 1957-58.

HEADNOTE: For  the assessment year 1957-58, the appellant-company  was assessed   to  agricultural  income-tax  under  the   Kerala Agricultural Income-tax Act,. 1950 and a surcharge was  also levied and collected from the appellant under the provisions of  the Kerala surcharge on Taxes Act, 1957.  The  appellant appealed  to  the  Deputy  Commissioner,  objecting  to  the imposition   of  surcharge  on  the  ground  that  the   law applicable   to  the  assessment  for  1957-58,  under   the provisions of the Agricultural Income-tax Act,. was the  law in  force on 1st April 1957, and as the Surcharge  Act  came into  force  only from 1st September 1957 and did  not  have retrospective effect, the surcharge could not be levied  for that year.  The Deputy Commissioner rejected the objections but  the  Appellate Tribunal’ on further appeal  upheld  the contention.   The High Court. on a reference,. held  against the appellant. in appeal to this Court, HELD  :  The  Surcharge Act having come into  force  on  1st September1957, and not being retrospective in operation,  it could  not be regarded’ as law in force at the  commencement of the ear of assessment 1957-58.. Since it was not the law in  force on let April 19.57, no surcharge could  be  levied under it against the appellant in the assessment year  1957- 58.. [98.  A-B] Commissioner   of  Income-tax,  Bombay  v.   Scindia   Steam Navigation,   Co.   Ltd.  [1962]  1  S.C.R.  788   and   The Commissioner  of  Sales Tax U.P. v.. The Modi  Sugar  Mills, [1961] 2 S.C.R. followed. I.T.  Commissioner  v.  I.S. Lines, A.I.R.  1953  S.C.  439, explained.

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JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 980 of’1964. Appeal  by special leave from the judgment and order,  dated July  25,  1963  of  the Kerala  High  Court  in  Income-tax Referred Case No. 10 of 1962 (Agrl.). M.   C.  Setalvad,  O.  P. Mathotra, V. O.  Abraham,  J.  B. Dadachanji  O.  C.  Mathur  and  Ravinder  Naraini  for  the appellant. P.   Govinda  Menon, A. Sreedharan Nambiar and M. R.  Pillai for the respondent. The Judgment of the Court was delivered by Satyanarayana  Raju,  J.  This  appeal,  by  special  leave, against  the  judgment and order of the Kerala  High  Court, dated July 25, 94 1963   in   Income-tax  Referred  Case  No.   10   of   1962 (Agricultural), raises the question as to the true scope and operation of s. 2 of the Kerala Surcharge on Taxes Act, 1957 (Ker.   Act  XI of 1957), hereinafter called  the  Surcharge Act. The  facts  which  have given rise to  this  appeal  may  be briefly  stated.   For  the  assessment  year  1957-58,  the appellant  company was assessed to  agricultural  income-tax under the Kerala Agricultural Income-tax Act, 1950.  In  the assessment,   a  surcharge  at  the  rate  of  5%   on   the agricultural  income-tax  and  super  was  also  levied  and collected  from  the appellant under the provisions  of  the Surcharge Act. The  appellant  appealed  to  the  Deputy  Commissioner   of Agricultural  Income-tax and Sales Tax, South Zone,  Quilon, objecting to the imposition of surcharge on the ground  that the  law  applicable  to assessment for  1957-58  under  the provisions of the Agricultural Income-tax Act was the law in force  on April 1, 1957 and as the Surcharge Act which  came into  force  only from September 1, 1957 did  not  have  any retrospective effect, the surcharge could not be levied  for that  year.   By  his order, dated November  14,  1959,  the Deputy Commissioner rejected these objections. Thereupon,  the appellant preferred a further appeal to  the Kerala    Agricultural   Income-tax   Appellate    Tribunal, Trivandrum.   By  its  order,  dated  August  2,  1961,  the appellate  Tribunal upheld the contention of  the  appellant holding that the Surcharge Act ’Could not have retrospective operation  unless there was a specific provision therein  to that effect. On the application of the respondent, the Tribunal stated  a case  to the Kerala High Court and referred  the  following question of law : "Whether  any  surcharge can be levied on  the  agricultural income-tax payable for the assessment year 1957--58 ?" By judgment, dated July 25, 1963, the Division Bench of  the High Court answered the question in the affirmative, against the appellant.  The appellant then applied to this Court and obtained  special leave to appeal against the  judgment  and order of the High Court. It is contended for the appellant, by Mr. Setalvad,  learned counsel that the Surcharge Act having come into force- on 95 September  1, 1957 and the said Act not being  retrospective in  operation, it could not be regarded as law in  force  at the commencement of the year of assessment viz. 1957-58.  It is, also contended that in the absence of express  enactment

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or  necessary intendment, the provisions of a statute  which affect  a right in existence at the time of the  passing  of that  enactment  are not to be applied  retrospectively  and that  the  interpretation placed by the High  Court  on  the scope  of  sub-s.  (3)  of s. 1  of  the  Surcharge  Act  is erroneous. Before   dealing  with  these  contentions,  it   would   be convenient to read the material provision of the  Surcharge, Act.  Sub-section (3)  of s. 1 reads : "It  shall  come into force on such date as  the  Government may, by notification in the Gazette, appoint." By a notification, dated August 27, 1957, the Government  of Kerala appointed the first day of September 1957 as the date on  which the said Act shall come into force.  By a  further notification  dated  November 28, 1957,  the  Government  of Kerala, in exercise of the powers conferred on it by s. 6 of that  Act  notified that surcharge shall not  be  levied  on assessments  on the turnover or income of the  year  1956-57 onwards  but that it shall be confined only  to  assessments made  on  or  after September 1, 1957  and  that  where  the turnover  or income for periods prior to 1956-57 is  pending assessment..  surcharge shall not be levied on such  assess- ments  when made.  We are not now called upon  to  determine the validity of these regulations. Now,  it  is  well-settled that the Income-tax  Act,  as  it stands  amended on the first day of April of  any  financial year  must  apply  to the assessments  of  that  year.   Any amendments in the Act which come into force after the  first day  of  April of a financial year, would not apply  to  the assessment for that year, even if the assessment is actually made after the amendments come into force. In  Scindia  Steam  Navigation Co. Ltd. v.  Commr.  of  Inc. Tax,(1) a Divison Bench of the Bombay High Court, consisting of Chagla C.J., and Tendolkar J., considered the question as to  the effect of an amendment which came into  force  after the  commencement  of a financial year.  The facts  in  that case  were these.  The assessee’s ship was lost as a  result of enemy action.  The (1)  24 I.T.R. 686. 96 Government  paid  the assessee in 1944 a certain  amount  as compensation which exceeded the original, cost of the  ship. The  Income-tax Officer included the difference between  the original cost and the written down value of the ship in  the total  income of the assessee for the assessment year  1946- 47.   The  Tribunal upheld that decision  and  referred  the question,,  whether  the  sum  representing  the  difference between  the  original cost and the written down  value  was properly  included in the assessee’s total  income  computed for  the  assessment year 1946-47.  It was argued  that  the fourth  proviso  to s. 10 (2) (vii) of  the  Income-tax  Act (inserted by the Amendment Act of 1946 with effect from  May 4,  1946)  under  which  the inclusion  of  the  amount  was justified by the department, had no application to the case. The  learned Judges held that as it was the Finance  Act  of 1946  that imposed the tax for the assessment year  1946-47, the  total income had to be computed in accordance with  the provisions  of the Income-tax Act as on April 1, 1946;  that as  the  amendments made by the Amendment Act of  1946  with effect  from May 4, 1946 were not retrospective, they  could not be taken into consideration merely because the  assessee was assessed after that date; and that the assesses was  not liable  to pay tax on the sum because the fourth proviso  to s.  10(2)  (vii) of the Income-tax Act under  which  it  was

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sought  to  be  taxed was not in force  in  respect  of  the assessment year 1946-47. This Court affirmed this decision in Commissioner of Income- tax, Bombay v. Scindia Steam Navigation Co. Ltd. where it was  stated at p..816 as follows :               "On the merits, the appellant had very  little               to say.  He sought to contend that the proviso               though it came into force on May 5, 1946,  was               really intended to operate from April 1, 1946,               and he referred us to certain other enactments               as  supporting  that inference.   But  we  are               construing  the proviso.  In terms, it is  not               retrospective,  and we cannot import into  its               construction matters which are ad extra legis,               and thereby alter its true effect."               ’In  The  Commissioner  of  Sales  Tax,  Uttar               Pradesh  v. The ModiSugar Mills  Ltd.(2)  this               Court held by a majority as follows:               "A  legal  fiction  must  be  limited  to  the               purposes  for  which it has been  created  and               cannot be extended beyond               (2)   [1961] 2 S.CR. 189,199               (1) [1962] 1 S.C.R. 788: 42 I.T.R. 589.               97               its  legitimate  field.  The turnover  of  the               previous year is fictionally made the turnover               of  the  year of assessment : it  is  not  the               actual  or  the real turnover of the  year  of               assessment.  By the imposition of a  different               tariff   in  the  course  of  the  year,   the               incidence of tax liability may competently  be               altered   by   the   Legislature,   but    for               effectuating that alteration, the  Legislature               must devise machinery for enforcing it against               the  tax  payer  and if  the  Legislature  has               failed to do so, the court cannot resort to  a               fiction   which  is  not  prescribed  by   the               Legislature   and  seek  to  effectuate   that               alteration by devising machinery not found  in               the statute."               In  the instant case, there is no escape  from               the  conclusion  that the  Surcharge  Act  not               being retrospective by express intendment,  or               necessary  implication,  it  cannot  be   made               applicable from April 1, 1957, as the Act came               into force from September 1, of that year.               The  High  Court has, however, relied  upon  a               decision  of this Court in I. T.  Commissioner               v.  I.  S.  Lines(1) where  it  was  held’  as               follows :               "It   will  be  observed  that  we  are   here               concerned  with two datum lines : (1) the  1st               of April, 1940, when the Act came into  force,               and  (2) the 1st of April, 1939, which is  the               date  mentioned in the amended  proviso.   The               first question to be answered is whether these               dates  are to apply to the accounting year  or               the year of assessment.  They must be held  to               apply  to  the  assessment  year.  because  in               income-tax  matters the law to be  applied  is               the law in force in the assessment year unless               otherwise stated or implied.  The first  datum               line  therefore affected only  the  assessment               year of 1940-41, because the amendment did not               come  into force till the 1st of  April  1940.

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             That  means that the old law applied to  every               assessment  year  up  to  and  including   the               assessment year 1939-40." This  decision is authority for the proposition that  though the  subject  of the charge is the income  of  the  previous year,  the  law  to  be applied is  that  in  force  in  the assessment  year, unless otherwise stated or  implied.   The facts of the said decision are different and distinguishable and  the  High Court was clearly in error in  applying  that decision to the facts of the present case. (1)  A.I.R. 1953 S.C. 439, 98 The  Surcharge  Act having come into force on  September  1, 1957.   and  the  said  Act not  being  retrospective   in operation,  it could not be regarded as law in force at  the commencement  of the year of assessment 1957-58.  Since  the Surcharge Act was not the law in force on April 1, 1957,  no surcharge  could be levied- under the said Act  against  the appellant in the assessment Year 1957-58. In  the  result, the appeal is allowed  with  costs.  Appeal allowed. 99