20 March 1964
Supreme Court


Case number: Appeal (civil) 546 of 1962






DATE OF JUDGMENT: 20/03/1964


CITATION:  1964 AIR 1594            1964 SCR  (7) 383  CITATOR INFO :  F          1966 SC1113  (12)  RF         1977 SC 513  (5)

ACT: Sales  Tax-Reference  under Act pending  before  High  Court Impugnedlegislation in relation to the matter in reference amended-High  Court whether can take cognisance  of  amended legislation-U.P. Sales Tax Act, 1948 (U.P. Act 15 of  1948), ss. 3A, 31.

HEADNOTE: The  respondent  is  a manufacturer of cotton  yarn  and  is registered  as a dealer under the U.P. Sales Tax Act,  1948. This act came into force on April 1, 1948.  Under this  Act, sales  tax was payable on sales of cotton yarn at a  uniform rate  of  3 pies in a rupee.  Under s. 3(A) of the  Act  the Government of U.P. issued a notification declaring that with effect from June 9, 1948, the Sales Tax would be charged  at the  rate of six pies per rupee in respect of sales  of  the cotton  yam.   In the present case, the assessee  had  opted under  s.  7 of the Act to be assessed on  the  turnover  of previous  year.  The Sales Tax Officer held on the basis  of the notification dated June 9, 1948, that the rate of  three pies  per  rupee in respect of sales of cotton yarn  was  to apply  in the year of assessment for the first 69  days  and for the remaining part of the year the rate of six pies  per rupee  was to apply.  The decision of the Sales Tax  Officer was affirmed by the Judge (Revisions) Sales Tax.  The  Judge referred the case to the High Court.  On reference the  High Court  held  on  the  basis of its  judgment  in  Modi  Food Products  Ltd. that the rate of three pies per  rupee  would apply for the assessment of 1948-49 because the assessee had opted under s. 7 to be assessed on the basis of the turnover of  the previous year.  In the meantime the  legislature  of Uttar  Pradesh by Act III of 1963 enacted s. 31 which  makes Sales-tax exigible from an assessee who has opted to pay tax on  the  turnover of the previous year, as  if  the  altered rates were in force during the previous year.  The amendment is  given retroactive operation and applies  to  assessments



pending  or closed.  The question for  consideration  before this Court was whether this Amending Act would apply to  the present assessment. Held:(i)  The  law  found  incorporated  in  s.  31  by Amending  Act III of 1963 would apply to the  present  case. This  Court  in giving its opinion on the  question  in  the light of the amending Act is seeking to apply a  legislative provision  which was, by express enactment, in force at  the time when the liability arose, for s. 31 enacted by Act  III of  1963  is to be deemed to have been in operation  at  all material times in supersession of the previous law  declared by  this Court in Modi Sugar Mills Ltd.’s case.  This  Court is, therefore, not seeking to apply any law to the  question posed  before the High Court which was not in force  on  the date  of the transaction which is the subject-matter of  the reference Modi  Food Products Ltd. v. Commissioner of Sales-tax,  U.P. A.I.R.. 1956 All. 35 and Commissioner of Sales-tax, U.P.  v. Modi Sugar Mills Ltd., [1961] 2. S.C.R. 189 explained. 384 (ii)When  the question has been referred to the High  Court and   in  the  meantime  the  law  has  been  amended   with retroactive  operation,  it would be the duty  of  the  High Court  to  apply the law so amended as if  it  applies.   By taking notice of the law which has been substituted for  the original  provision, the High Court is giving effect to  the legislative intent and does no more than what must be deemed to  be necessarily implicit in the question referred by  the Tribunal,  provided  the  question is couched  in  terms  of sufficient  amplitude to cover an enquiry into the  question in  the light of the amended law, and the enquiry  does  not necessitate investigation of fresh facts. M/s.  Chatturam Horilram Ltd. v. Commissioner of  Incometax, Bihar  and  Orissa,  [1955] 2 S.C.R. 290  and  M/s.   Rampur Distillery  Chemical Works Ltd. v. Commissioner  of  Income- tax,   U.P.,   I.T.  Reference  No.  362/58   dt.   17-1-64, distinguished.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 546 of  1962. Appeal  by special leave from the judgment and decree  dated December 17, 1958 of the Allahabad High Court in Misc.  Case No. 152 of 1952. C.   B. Agarwala and C. P. Lal, for the appellant. S.   K.  Kapur,  S.  K.  Mehta and  K.  L.  Mehta,  for  the respondent. March 20, 1964.  The Judgment of the Court was delivered by SHAH,  J -Bijli Cotton Mills-respondent in this appeal-is  a manufacturer  of cotton yarn and is registered as  a  dealer under  the U.P. Sales Tax Act (15 of 1948).  Under the  U.P. Sales Tax Act (15 of 1948) which came into force on April 1, 1948, sales-tax became payable on sales of diverse  commodi- ties  including cotton yarn at a uniform rate of three  pies in  a rupee.  By Act 25 of 1948, s. 3-A was incorporated  in Act  15  of 1948 conferring upon the  Provincial  Government power  to declare by notification that the proceeds of  sale of any goods or class of goods shall not be included in  the turnover  of any dealer except at such single point  in  the series   of  sales  by  successive  dealers  as  the   State Government  may  specify.  By s. 7 as amended by Act  25  of 1948,  a dealer had the option to submit his return  on  the basis  of the turnover of the sales in the previous year  or on  the basis of turnover of the sales in the current  year.



The respondent company opted to be assessed on the basis  of the turnover of the previous year ending March 31, 1948. In  exercise  of  the  power under s. 3-A  of  the  Act  the Government of U.P. issued a notification declaring that with effect  from June 9, 1948, the proceeds of goods entered  in column  2  of the schedule to the said  notification  (which included cotton yarn) shall not be included in the  turnover of any dealer except at the point in the series of sales  by successive                             385 dealers, and that with effect from June 9, 1949, the rate of tax in respect of the turnover of the aforesaid goods  shall be  as  set  out  in  the schedule.   As  a  result  of  the notification  the  sale of cotton yarn became taxable  at  a single point i.e. at a point of sale by the importer if  the goods  were  imported from outside Uttar Pradesh  and  at  a point of sale by the manufacturer, if manufactured in  Uttar Pradesh,  and the rate of tax in respect of cotton yarn  was fixed,  since  the  date of notification, at  six  pies  per rupee. The  Sales-tax Officer, Hathras in assessing the  respondent company  to sales-tax for the assessment year  1948-49  held that  because of the notification issued by the  Government, the  rate  of three pies per rupee in respect  of  sales  of cotton  yarn was to apply in the year of assessment for  the first  69  days and for the remaining part of the  year  the rate of six pies per rupee was to apply, and on that account notwithstanding that the assessee had opted under s. 7 to be assessed on the basis of the turnover of the previous  year, the  rate  of three pies was applicable to  -the  assessable turnover for the first 69 days and for the rest of the  year the rate applicable was six pies per rupee.  This order  was modified in appeal by the Judge (Appeals) Sales Tax, Meerut, who directed assessment of tax on the turnover at a  uniform rate  of  three pies per rupee.  But the order  of  the  ap- pellate  court was reversed by the Judge  (Revisions)  Sales Tax,  U.P. who restored the order of the Sales-tax  Officer. The  Judge  (Revisions)  Sales Tax at the  instance  of  the respondent  company  then  referred to  the  High  Court  of Judicature at Allahabad the following question:               "Whether  the  assessees who had  elected  the               previous  year  are liable to pay tax  in  the               assessment year 1948-49 according to the rates               prevailing during the year", and the High Court following its judgment in Modi Food  Products Ltd.  v.  Commissioner of Sales Tax,  U.P.(1)  answered  the question as follows:               "all sales of the assessee during the previous               year which corresponded with the calendar year               1947  have to be taxed at the flat rate  of  3               pies per rupee when making the assessment  for               the assessment year 1948-49". With special leave, the Commissioner of Sales Tax, U.P.  has appealed to this Court against the order of the High Court. It  may be observed that the judgment of the Allahabad  High Court in Modi Food Products Ltd.’s case(1) was confirmed  by this Court: Commissioner of Sales Tax, U.P. v. The (1) A.I.R. 1956 All. 35. L P(D)ISCI--13 386 Modi Sugar Mills Ltd.(1) But the Legislature of the State of Uttar  Pradesh has, since that judgment was pronounced,  en- acted  validating legislation by Act III of 1963  which  has provided by s. 7 of the Amending Act that:               "After  section 30 of the Principal  Act,  the



             following,  shall  be added and be  deemed  to               have been added with effect from the first day               of April, 1948, as new section 31 :               ’31  (1) Where any dealer has,  in  accordance               with the provisions of section 7, as it  stood               prior  to its amendment by section 7  of  U.P.               Act  XIX of 1956, opted to be assessed to  tax               -on the basis of his turnover of the  previous               year,  he  shall be assessed to  tax  at  such               rates  as  are prevalent during the  year  for               which the assessment is being made, and if the               rates  of tax on any goods or class  of  goods               arc  altered during such assessment year,  the               dealer,  in  respect of the turnover  of  such               goods,  shall  be  liable to pay  tax  at  the               altered rates, as if the altered rates were in               force   during   the   previous   year    also               proportionately  for the same number  of  days               as,  they are in force during  the  assessment               year.               (2)   Notwithstanding any judgment, decree  or               order of any court, all assessments or  orders               made,    actions.   or   proceedings    taken,               directions issued, jurisdictions exercised  or               tax  levied  or collected by  any  officer  or               authority   purporting   to  act   under   the               provisions of sub-section (1) of section 7, as               it  stood prior to its amendment by section  7               of U.P. Act XIX of 1956, shall be deemed to be               good and valid in law as if such  assessments,               orders,   actions,  proceedings,   directions,               jurisdictions  and  tax have been  duly  made,               taken, issued, exercised, levied or collected,               as  the  case may be, under or  in  accordance               with the said provisions of this Act as amend-               ed by the Uttar Pradesh Bikri Kar (Sanshodhan)               Adhiniyam,  1962  and as if the  amendment  so               made had been in force on all material dates.               Explanation-For  the purpose of  this  section               the expression "previous year" shall have  the               meaning  assigned to it in sub-clause (ii)  of               clause  (j)  of section 2 of this Act,  as  it               stood  prior to its amendment by section 2  of               the U.P. Act XIX of 1956.’ "               Section  31 makes sales-tax exigible  from  an               assessee  who  has, opted to pay  tax  on  the               turnover  of  the  previous year,  as  if  the               altered   rates  were  in  force  during   the               previous  year.  The turnover of the  previous               year must therefore be broken up, the new rate               of  tax being applicable  proportionately  for               the               (1)   [1961] 2 S.C.R. 189.                                    387               same  number of days in the previous  year  as               were  in  force in the assessment  year.   The               amendment  is  retroactive,  and  applies   to               assessments  pending  or  closed,  as  if  the               validating  Act  had  been  in  force  at  the               material date.               This Court had in the Modi Sugar Mills  Ltd.’s               case(1)  held  -that where  the  assessee  had               elected  to submit his return on the  turnover               of  the previous year under s. 7 of Act 15  of               1948  as  amended  by Act 25 of  1948  he  was



             liable  to  be assessed to -sales-tax  at  the               rate in force on the first day of the year  of               assessment,  because the liability  arises  on               that  date, and any subsequent enhancement  of               the rate by virtue of a notification under  s.               3-A  does not alter that liability.  The  view               expressed  by the Court has been  modified  by               express legislation operative retrospectively.               The  liability to tax of the turnover  of  the               previous   year  which  is  regarded  as   the               fictional  turnover of the year of  assessment               has  to  be determined on the basis  that  the               rates  applicable  in the year  of  assessment               were  fictionally  projected  on  the  taxable               turnover.               Mr.   Kapur   appearing  on  behalf   of   the               respondent company submitted that in answering               the question referred by the Judge (Revisions)               this  Court was bound to give its  opinion  in               the  light  of  the  law  applicable  to   the               transaction  as  it prevailed at the  date  on               which  the reference was made and not  of  any               subsequent  amendment  of  the  Act.   Counsel               submits  that as the High Court  exercises  an               advisory  jurisdiction, so does this Court  in               appeal  against the order of the  High  Court,               and  its  advice can only be tendered  on  the               question referred and in the light of the  law               as  was  applicable  at  the  date  when   the               reference was made.  Counsel says that if  the               law   as   amended  is  to   be   taken   into               consideration,  in substance this Court  would               be  answering  a question other than  the  one               which  was referred by the  Judge  (Revisions)               Sales Tax.  In our view there is no  substance               in this contention.  The question referred  to               the  High  Court  posed a problem  as  to  the               liability  of  the respondent  company  to  be               assessed for the assessment year 1948-49.  Two               rival  views were propounded before the  Judge               (Revisions) Sales Tax.  One was that the rates               applicable  to the fictional turnover for  the               year of assessment were those prevalent in the               year 1948-49 and for the purpose of assessment               they had to be applied to the turnover in  the               same  proportion  in  which  they  would  have               applied if the option had not been  exercised.               That  was  the  contention of  the  Sales  Tax         X       X Department.   The contention of  the  assessee               was that having opted for the turnover of  the               previous  year,  the rates applicable  to  the               turnover would be crystalised on the first day               of the year of assessment and any modification               since  the  commencement of the  year  in  the               rates  would be inapplicable.  This  Court  in               the Modi Sugar               (1)   [1961] 2, S.C.R. 189.               388               Mills  Ltd.’s case(1) accepted the  contention               raised   by   the  assessee.   But   for   the               amendment, the question which was posed by the               Judge  (Revisions) Sales Tax would have to  be               answered as it was answered by the High Court.               The Legislature has,. however, amended the Act



             and  has  declared  that  notwithstanding  the               option exercised by the assessee the tax would               have to be computed in the light of the  rates               prevailing  in.  1948-49  as.  if  they   were               projected  upon the turnover of  the  previous               year.   The Legislature has  expressly  stated               that  this rule will prevail as if it  was  in               force  during  the  assessment  year  and  all               assessments will be made in the light of  this               amended rule.  In answering the question which               was  submitted by the Judge (Revisions)  Sales               Tax,   therefore,  the  law  enacted  by   the               Legislature  is the law found incorporated  in               s. 31 by Amending Act III of 1963.  This Court               in  giving its opinion on the question in  the               light of the amending Act is seeking to  apply               a legislative provision which was, by  express               enactment,  in  force  at the  time  when  the               liability arose, for s. 31 enacted by Act  III               of  1963  is  to be deemed  to  have  been  in               operation    at   all   material   times    in               supersession of the previous rule declared  by               this  Court.   This Court is,  therefore,  not               seeking to apply any law to the question posed               before the High Court which was not in  force.               on  the date of the transaction which  is  the               subject-matter of the reference.               The    following    observation    made     by               Jagannadhadas J., in Messrs Chatturam Horilram               Ltd.  v. Commissioner of Incometax, Bihar  and               Orissa(2)  on  which reliance  was  placed  by               counsel for the respondent company:               "The  High  Court’s jurisdiction was  only  to               answer   the  particular  question  that   was               referred  to  it by the  Income-tax  Appellate               Tribunal and it is extremely doubtful  whether               they  could have taken notice of a  subsequent               legislation    and   answered   a    different               question.", does  not  suggest a different rule.   In  Messrs  Chatturam Horilram Ltd.’s case ( 2 ) a previous assessment to  income- tax of the assessee fell through because the Indian  Finance Act of 1939 was not in force in Chota Nagpur area where  the assessee  was  carrying  on  business  during  the  relevant assessment year.  Thereafter Bihar Regulation IV of 1942 was promulgated by the Governor of Bihar with the assent of  the Governor-General and thereby the Indian Finance Act of  1939 was  brought into force in Chota Nagpur  retrospectively  as from  March 30, 1939.  On February 8, 1944,  the  Income-tax Officer  issued  a fresh notice under s. 34  of  the  Indian Income-tax  Act, 1922, which resulted in the  assessment  of the appellant to income-tax, and the question which fell  to be determined was whether the (1) [1961] 2 S.C.R. 189. (2 )  [1955] 2 S.C.R. 290. 389 notice  was properly issued under s. 34 of the Act.  It  was argued  that  when  the  High  Court  answered  the  earlier reference which negatived the claim of the Revenue to assess the  assessee, Bihar Regulation IV of 1942 had in fact  been enacted,  and if the High Court had applied that  Regulation the  result would have been different, and in  meeting  that argument the Court observed that it was doubtful if the High Court  had  jurisdiction  to  take  into  consideration  the subsequent  legislation for answering a question other  than



the one which was actually raised.  The doubt expressed  was therefore  in respect of the power of the Court to decide  a question other than the question which was actually referred and  not in respect of the power and indeed the duty of  the High Court to apply to the question referred the law enacted with retroactive operation. In  support  of  his contention Mr. Kapur  relied  upon  the observation  of  Desai,  C.J.,  in  M/s  Rampur   Distillery Chemical  Works  Ltd.  v. The  Commissioner  of  Income-tax, U.P.(1) to the following effect:               "The  argument was that though the High  Court               has to answer the question referred to it with               reference  to the law in force in  1957  (when               the  Tribunal  disposed of the  appeal),  what               that  law was has to be discovered today  with               reference to the law existing today.  What was               the  law  in 1957 on the basis  of  which  the               Tribunal disposed of the appeal has  certainly               to be decided by this court today but what has               to be decided is the law existing in 1957  and               not  deemed to exist in 1957 by virtue  of  an               amendment in the law made in 1962." But  in  that  case,  in the view  of  the  High  Court  the amendment  made by the amending statute of 1962  which  came into  force after the reference was made by  the  Income-tax Tribunal  had no retrospective operation, and  the  question referred  by  the Tribunal had to be answered  by  the  High Court  in  the light of the relevant law applicable  at  the date of the transaction.  The observation relied upon has to be  read in the context of the finding of the High Court  as to   the  character  of  the  amending   legislation.    The observation  therefore does not assist the  contention  that even  in cases where the relevant statute has  been  amended with   retroactive  operation,  so  as  to  apply   to   the transaction which forms the subject-matter of the reference, and  the High Court or this Court is bound in recording  its opinion on the question referred to ignore the amended  law. If  what counsel contends is true. the answer given  by  the High Court or by this Court would have no value whatever  in cases where by retroactive amendment of the law, the old law has (1)  I.T.  Reference  No. 362 of 1958 decided  on  Jan.  17, 1964. 390 been  superseded  and  is substituted  by  a  new  statutory provision.  Undoubtedly the Tribunal called upon to decide a taxing  dispute must apply the relevant law applicable to  a particular  transaction  to which the problem  relates,  and that  law normally is the law applicable as on the  date  on which  the transaction in dispute has taken place.   If  the law  which  the Tribunal seeks to apply to  the  dispute  is amended, so as to make the law applicable to the transaction in dispute, it would be bound to decide the question in  the light  of the law so amended.  Similarly when  the  question has been referred to the High Court and in the meanwhile the law has been amended with retroactive operation, it would be the duty of the High Court to apply the law so amended if it applies.   By  taking  notice  of the  law  which  has  been substituted  for the original provision, the High  Court  is giving  effect to legislative intent and does no  more  than what  must  be  deemed to be  necessarily  implicit  in  the question referred by the Tribunal, provided the question  is couched in terms of sufficient amplitude to cover an enquiry into  the question in the light of the amended law, and  the enquiry  does not necessitate investigation of fresh  facts.



If  the  question is not so couched as to  invite  the  High Court  to  decide the question in the light of  the  law  as amended  or if it necessitates investigation of facts  which have  not  been investigated, the High Court may  refuse  to answer  the question.  Application of the relevant law to  a problem raised by the reference before the High Court is not normally  excluded  merely  because at  the  date  when  the Tribunal  decided the question the relevant law was  not  or could  not  be brought to its notice.  There is  nothing  so peculiar  in  the  nature of a reference  under  the  Indian Income-tax Act or the Sales Tax Acts that in deciding it the High Court is restricted to the application of the law which has  been superseded by legislation since the date when  the reference  was  made by the Tax Tribunal and is  obliged  to refuse  to apply the law which by legislative direction  has to  be  applied  to a particular transaction  which  is  the subject-matter of the reference. On the view taken by us this appeal must be allowed and  the question  raised by the Judge (Revisions) Sales Tax must  be answered  in the affirmative.  Having regard to the  circum- stances  of the case, the parties will bear their own  costs both in this Court and the High Court. Appeal allowed. 391