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PETITIONER: G. EKAMBARAPPA & ORS.

       Vs.

RESPONDENT: EXCESS PROFITS TAX OFFICER, BELLARY

DATE OF JUDGMENT: 02/05/1967

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C. SIKRI, S.M.

CITATION:  1967 AIR 1541            1967 SCR  (3) 864  CITATOR INFO :  R          1976 SC 958  (20,21)

ACT: Adaptation  of Laws, Order (No. 3) dated December 31,  1956- Excess Profits Tax Act, 1940 made inapplicable to all  areas forming  part of a Part B State immediately before  November 1,  1956-Whether  amounts to ’repeal’ of Act in  respect  of such area-General Clauses Act, s. 6 whether attracted. General Clauses Act, s. 6(e)-Liability ’accrued or incurred- ’Bellary  district  included  in Part  B  State  immediately before November 1, 1956-Notice under Excess Profits Tax Act, s.  15 issued in 1960 in respect of business carried  on  in said  district in 1943-44-Terms of s. 6(e)  General  Clauses Act whether satisfied-Liability to tax Whether arises at end of  chargeable  accounting period or  when  assessment  pro- ceedings completed.

HEADNOTE: The District of Bellary originally belonged to the Part  ’A’ State  of  Madras in British India.  On October 1.  1953  it merged  in  the  Part ’B’ ’.State  of  Mysore.   The  Excess Profits  Act,  1940  applied only to  British  India.   When Bellary  District went to the Part ’B’ State of  Mysore  the Act ceased to apply to it.  After the States  Reorganisation Act,  1956,  Mysore  also  became a  Part  ’A’  State.   But according to s. 1(2) of the Adaptation of Laws (No. 3) Order dated  December 31, 1956. the aforesaid Excess  Profits  Tax Act  was  to  extend  "to the whole  of  India  ,except  the territories  which immediately before November 1, 1956  were comprised  in a Part ’B’ State." In 1960 the Excess  Profits Tax  Officer, Bellary gave a notice to the appellants  under s.  15 of the Act in respect of the period October 30,  1943 to  October 30, 1944.  The appellants objected that the  Act did  not  apply to Bellary district  as  immediately  before November  1, 1956 it was in a Part ’B’ State.  The plea  was rejected  by the departmental authorities as well as by  the High  Court  in  a  writ petition  under  Art.  226  of  the Constitution.  In appeal. by special leave, to this Court it was contended that so far as Bellary District was  concerned it  was not a case of repeal but only of non-application  of the  Act, and thus s. 6 of the General Clauses Act  was  not

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attracted.   It was further urged that even if s. 6  applied no  liability bad accrued or been incurred in terms  of  cl. (e)  of  the section as there was no assessment  of  escaped profits  before  November 1, 1956 when  the  adaptation  was made. HELD  : (i) The result of the Adaptation of Laws Order  1956 so far as the Act was concerned, was that the provisions  of the  Act  were no longer applicable or in force  in  Bellary district.   To put it differently, the Act was  repealed  so far  as the area of Bellary district was concerned.   Repeal of the Act means revocation or abrogation of the Act and  s. 6  of the General Clauses Act applies even in the case of  a partial repeal, or repeal of part of an Act. [866H; 867A] (ii)The case was covered by s. 6(e) of the General  Clauses Act.  The liability of an assessee to tax arises immediately at  the  end  of the chargeable accounting  period  and  not merely  at  the time when it is  quantified.  by  assessment proceedings.  It followed therefore that the 865 notice  issued under s. 15 of the Act was legally valid  and the  appellants  representing the original partners  of  the firm  continued to be liable to be proceeded  against  under that  section  for the profits which had  escaped  taxation. [867 E-F] Wallace  Brothers  & Co. v. Commissioner of  Income-tax,  16 I.T.R.  240  (P.C.), Chatturam Horilram Ltd. v.  C.I.T.,  27 I.T.R. 709.  Kalwa  Devaduttam v. Union of India, 49 I.T.R., 165  and State of Kerala V. N. Same lyer, A.I.R.  1966  S.C. 1415, relied on.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 185 of 1966. Appeal  by special leave from the judgment and  order  dated March 20, 1962 of the Mysore High Court in Writ Petition No. 109 of 1960. A.K.  Sen, R. Ganapathy Iyer and R.  Gopalakrishnan,  for the appellants. D.Narsaraju,  T. A. Ramachandran and R. N. Sachthey,  for the respondent. The Judgment of the Court was delivered by Ramaswami, J. This appeal is brought, by special leave, from the judgement of the Mysore High Court dated March 20,  1962 dismissing  writ petition No. 109 of 1960.   The  appellants had  prayed  therein for the grant of writ for  quashing  a. notice dated January 16, 1960 issued by the respondent under s. 15 of the Excess Profits Tax Act, 1940 (Act XV of  1940), hereinafter called the ’Act’, calling upon the appellants to submit  a  return of the standard profits  and  the  profits actually  made during the chargeable accounting period  from October 30, 1943 to October 30, 1944 on the ground that  the profits had been under-assessed. The appellants carried on a business constituting themselves into a partnership called ’Guduthur Thimmappa & Brothers  in 1934.  On the date of commencement of the business the part- ners were G. Thimmappa, G. Ekambarappa, and G.  Padmanabhan, each  of  the partners representing their  respective  joint families.  The business of the firm was in Bellary town  and the  partners  of the firm were residents  of  Bellary  town during  the period the firm was carrying on business.   The, firm  was dissolved on October 16, 1944.  Thimmappa, one  of the  partners, died on April 13, 1955.  For  the  chargeable accounting  period from October 30, 1943 to April 30,  1944,

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the Excess Profits Tax Officer had taken steps to assess the "escaped"  profits  of the firm.  He  issued  the  necessary notices to G. Padmanabhan and G. Ekambarappa as the partners of  the  dissolved  firm.  He also issued notice  to  G.  M. Prabhu  and G. Lakshmidevamma as the representatives  of  G. Thimmappa.   The  contention of the appellants,  before  the High Court was that as from November 1, 1956 the Act must be 866 deemed  to have been repealed so far as Bellary district  is concerned and therefore the respondent was not competent  to take  any  proceedings for determining  the  escaped  income under  S.  15  of that Act.  The  High  Court  rejected  the contention on the ground that, though the Act stood repealed by  reason  of the inclusion of Bellary district  in  Mysore State,  the  liability  to pay tax on  the  escaped  profits continued by virtue of s. 6 of the General Clauses Act. The question to be considered in this appeal is whether  the appellants  continued to be liable to be  proceeded  against under S.  15  of  the Act on the profits which  had  escaped taxation. The  present Bellary district was a part of the  old  Madras State  which was a Part "A" State under the Constitution  of India  till its merger with the Mysore State on  October  1, 1953 which was a Part "B" State.  The Mysore State continued to  be  a  Part "B" State till November 1,  1956.   The  Act extended,  when  first  promulgated, to.  the  territory  of former  British  India.  After the  Constitution  came  into force,  s. 1(2) of the Act was adapted so as to  extend  the operation of the Act "to the whole of India except Part  ’B’ States"  by the Adaptation of Laws Order, 1950.   After  the formation of new States in pursuance of the States Reorgani- sation Act, 1956 (Act 37 of 1956), sub-s. (2) of s. 1 of the Act was adapted by the President by Adaptation of Laws  (No. 3) Order, 1956 dated December 31, 1956.  Section 1(2) of the Act as adapted read as follows :               "It  extends to the whole of India except  the               territories  which immediately before the  1st               November,  1956  were comprised  in  part  ’B’               state." The result of the adaptation was that all the provisions  of the Act stood repealed so far as the district of Bellary was concerned  with  effect  from December  31,  1956.   It  was contended on behalf of the appellants that it is not a  case of  repeal of the Act and so the provisions of s. 6  of  the General  Clauses  Act could not be invoked  to  sustain  the validity of the notices issued by the respondent under S. 15 of  the Act.  It was argued that so far as the Act was  con- cerned, the Adaptation of the Laws Order, 1956 only modified the provisions of s. 1 (2) of the Act and did not repeal the Act as such and the effect of the modification was that  the provisions  of  the  Act were no longer  applicable  to  the Bellary  district  which was comprised in the  territory  of Part  ’B’  State of Mysore immediately  before  November  1, 1956.   In  our opinion there is no  justification  for  the argument  put  forward  on behalf of  the  appellants.   The result  of the Adaptation of Laws Order, 1956 so far as  the Act was concerned, was that the provisions of that Act  were no  longer applicable or in-force in Bellary  district.   To put it differently, the Act was repealed so far as the  area of Bellary 8 6 7 district  was concerned.  Repeal of an Act means  revocation or  abrogation of the Act and, in our opinion, s. 6  of  the General  Clauses Act applies even in the case of  a  partial repeal  or  repeal  of part of an Act.   Section  6  of  the

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General Clauses Act states               "Effect  of  repeal.-Where  this  Act  or  any               Central  Act  or  Regulation  made  after  the               commencement   of   this  Act,   repeals   any               enactment  hitherto  made or hereafter  to  be               made,  then,  unless  a  different   intention               appears, the repeal shall not-               (c)   affect any right, privilege,  obligation               or  liability  acquired, accrued  or  incurred               under any enactment so repealed; or Section  3(19)  of  the  General  Clauses  Act  defines   an "enactment" as including "a Regulation and also as including any provision contained in any Act or in any such Regulation as aforesaid". The  argument was also stressed on behalf of the  appellants that  even  if  s.  6(c) of  the  General  Clauses  Act  was applicable  there was no "liability incurred or accrued"  as there  was no assessment of escaped profits before  November 1, 1956 when the adaptation was made.  We do not think there is  -any substance in this argument.  The liability  of  the appellants  to  tax  arose immediately at  the  end  of  the chargeable accounting period and not merely at the time when it  is  quantified by assessment  proceedings.   It  follows therefore that the notice issued under s. 15 of the Act  was legally  valid and the appellants representing the  original partners of the firm continued to be liable to be  proceeded against under that section for the profits which had escaped taxation.  In Wallace Brothers and Co.  Ltd. v. Commissioner of income-tax(1), the Judicial Committee expounded in  clear terms the scope of a tax liability under the Income-tax Act. It was observed by the Judicial Committee as follows :               "........  the  rate of tax for  the  year  of               assessment may be fixed after the close of the               previous   year   and  the   assessment   will               necessarily  be made after the close  of  that               year.   But  the liability to  tax  arises  by               virtue  of the charging section alone, and  it               arises  not  later  than  the  close  of   the               previous  year, though quantification  of  the               amount payable is postponed." The same view has been expressed by this Court in Chatturam Horilram Ltd. v. C.I.T. (2) in which the legal position  was reviewed (1) 16 I.T.R. 240, 244. (P.C.) (2) 27 I.T.R. 769. 868 with  regard  to the question of charge to  income-tax.   In that  case,  the assessee-company carrying  on  business  in Chota  Nagpur was assessed to tax for the year 1939-40,  but the  assessment  was set aside by the  Income-tax  Appellate Tribunal  on March 28, 1942, on the ground that  the  Indian Finance  Act, 1939, was not in force during  the  assessment year 1939-40, in Chota Nagpur which was a partially excluded area.   On  June 30, 1942, a Regulation was  promulgated  by which the Indian Finance Act of 1939 was brought into  force in  Chota  Nagpur retrospectively as from  March  30,  1939. Thereupon the Income-tax Officer made an order holding  that the income of the assessee for the year 1939-40 had  escaped assessment  and issued to the assessee a notice under s.  34 of  the  Income-tax  Act.  The validity of  the  notice  was questioned. It  was  held  by th Court  that  though  the Finance  Act was not in force in that area in  1939-40,  the income of the assessee wasliable  to  tax in  that  year and,  therefore,  it had escapdently of the passing  of  the Finance  Act  but until the Finance Act It was  pointed  out

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that the income was chargeable to tax independing dently  of the passing of the Finance Act but until the Finance Act was passed no tax could be actually levied.  The same  principle was reiterated by this Court in Kalwa Devadattam v. Union of India(l).   The  question  in  that  case  was  whether  the liability of a Hindu undivided family arose before or  after partition of the family.  In that case, this Court  speaking through Shah, J. stated in clear terms thus :               "Under the Indian Income-tax Act liability  to               pay  income-tax arises on the accrual  of  the               income,  and not from the computation made  by               the  taxing  authorities  in  the  course   of               assessment  proceedings; it arises at a  point               of  time not later than the close of the  year               of account." The same view has been taken in a recent case by this  Court in  State  of Kerala v. N. Sami lyer (2 ) . In view  of  the principle  expressed  in  these authorities we  are  of  the opinion that the liability to pay excess profits tax accrued immediately  at the end of the chargeable accounting  period and  that  liability  was preserved under s. 6  (c)  of  the General  Clauses Act even though the Act stood  repealed  so far  as  Bellary  district was concerned  with  effect  from November 1, 1956. Mr.  Narsaraju  contended  in the alternative  that  on  the combined  operation of S. 53 of the Andhra Pradesh Act  (Act 30 of 1953) and s’ 119 of the State Reorganisation Act  (Act 37  of  1956) all the provisions of the Excess  Profits  Tax Act, 1940 remained in operation in Bellary district in spite of  the Adaptation of Laws Order, 1956.  Section 53  of  the Andhra Pradesh Act states as follows: (1)  49 I.T.R. 165. (2) A.I.R. 1966 S.C. 1415. 8 69 .lm15 "The  provisions  of  Part 11 shall not be  deemed  to  have effected  any change in the territories to which any law  in force  immediately  before  the  appointed  day  extends  or applies,  and territorial references in any such law to  the State of Madras or of Mysore shall, until otherwise provided by  a  competent Legislature or other  competent  authority, continue to have the same meaning. " .lm0 Section 119 of the State Reorganisation Act reads as follows               "The provisions of Part It shall not be deemed               to have effected any change in the territories               to  which any law in force immediately  before               the  appointed  day extends  or  applies,  and               territorial  references in any such law to  an               existing State shall, until otherwise provided               by a competent Legislature or other  competent               authority,   be  construed  as   meaning   the               territories  within  that  State   immediately               before the appointed day."               Section 120 of this Act states :               "For   the   purpose   of   facilitating   the               application  of any law in relation to any  of               the States formed or territorially altered  by               the  provisions  of Part II,  the  appropriate               Government  may, before the expiration of  one               year  from  the appointed day, by  order  make               such adaptations and modifications of the law,               whether by way of repeal or amendment, as  may               be necessary or expedient, and thereupon every               such  law  shall have effect  subject  to  the

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             adaptations  and modifications so  made  until               altered,  repealed or amended by  a  competent               Legislature or other competent authority.               Explanation.-In  this section, the  expression               "appropriate Government" means-               (a)  as respect any law relating to  a  matter               enumerated  in  the Union  List,  the  Central               Government; and               (b)   as respects any other law,-               (i)   in  its application to a Part  A  State,               the State Government, and               (ii)  in  its application to a Part  C  State,               the Central Government." it  was  pointed out that the Act was in  force  in  Bellary district  When  the  Constitution came into  force  and  the effect  of s. 53 of the Andhra Pradesh Act was  to  continue the  operation  of that Act so far as Bellary  district  was concerned.  The effect of s. 119 870 of  the  State  Reorganisation  Act  was  to  preserve   the territorial  operation of the law which was  immediately  in force before the date of the promulgation of that Act  until such  law  was repealed by the competent  legislature  or  a competent  legislative authority.  There is great force  in. the  argument advanced by Mr. Narsaraju on this point.   But it is not necessary for us to express any concluded  opinion on  this aspect of the case because we have  -already  given reasons for holding that the appeal must be dismissed on the ground  that  the  Act  stood  repealed  by  reason  of  the Adaptation of Laws Order, 1956 and the liability to pay  tax on  escaped  profits  continued under s. 6  of  the  General Clauses Act. We accordingly affirm the judgment of the Mysore High  Court dated March 20, 1962 and dismiss this appeal with costs. G.C.                               Appeal dismissed. 871