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PETITIONER: HUKUMCHAND MILLS LTD.

       Vs.

RESPONDENT: THE STATE OF MADHYA BHARAT AND ANOTHER

DATE OF JUDGMENT: 20/02/1964

BENCH: WANCHOO, K.N. BENCH: WANCHOO, K.N. GAJENDRAGADKAR, P.B. (CJ) GUPTA, K.C. DAS SHAH, J.C. AYYANGAR, N. RAJAGOPALA

CITATION:  1964 AIR 1329            1964 SCR  (6) 857  CITATOR INFO :  D          1972 SC 182  (15,17)  R          1976 SC2581  (12)  F          1977 SC 854  (18)  R          1977 SC1146  (8)  R          1983 SC 537  (5)

ACT: Industrial  Tax-Assessment  under the  Tax  Rules-Amendment- Validity-Assessment  under the old law if validated  by  the Validating  Act-Validating  Act if, hit  by  Art.  14-Indore Industrial Tax 858 Rules,  1927: rr. 17, 18-Finance Act No. 25  of  1950-Madhya Bharat  Taxes  on  Income (Validation) Act No.  38  of  1954 Constitution of India, Art. 14.

HEADNOTE: The  appellant, a Cotton Mill in Indore in Holkar State  was taxed in  respect  of  profits, gains and income  under  the Indore  Industrial  Tax  Rules, 1927 by the  then  Ruler  of Indore.  The  Holkar State merged into the State  of  Madhya Bharat  which acceded to India.  The Rajpramukh of  the  new State promulgated an Ordinance No. 1 of 1948 to provide  for peace and good Government of the State.  This Ordinance  was superseded  by  Act 1 of 1948.  Thereafter on  December  28, 1949, me Government issued a Notification under r. 18 of the Tax  Rules  purporting to make rules under  r.  17  thereof. These  rules made certain amendments in the Tax Rules.   The State  of Madhya Bharat became one of the Part B  States  on January 26, 1950.  From April 1, 1950, Finance Act No. 25 of 1950  came  into force and applied to  Madhya  Bharat  also. According  to  its  provision,  the Tax  Rules  came  to  be repealed from after the accounting year ending on March  31, 1949 and assessments could only be made under the Tax  Rules upto  the end of the accounting period ending on  or  before March   31,  1949.   It  further  provided  that  even   the assessments  for the years previous to the  accounting  year ending  on  March  31,  1949  could  only  be  made  by  the corresponding authorities under the Income-tax Act, and that

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appeals would lie to the corresponding authorities under the Income-tax Act; no levy and assessment could be made by  the authorities  under the repealed law and no appeal would  lie to the authorities or Court under that law.  This  provision as to the authorities competent to make assessments was lost sight of with the result that assessments were made for  the years  in dispute which were all before the accounting  year ending  on March 31, 1949 by the authorities under  the  Tax Rules, as they were before their repeal.  When this  mistake was discovered, Parliament passed the Madhya Bharat Taxes on Income (Validation) Act, No. 38 of 1954.  The appellant then challenged  the  validity of the assessments under  the  Tax Rules,  on the grounds: (1) that the amendments of  the  Tax Rules  on December 28, 1949 were invalid as such  amendments could  not  be  made under r. 17 of the Tax  Rules,  as  was purported to be done; (2) even if the amendments were  good, they  could not have retroactive effect and could  not  take away  the vested right of appeal; (3) as after  the  Finance Act,  1950,  assessments  were  made  by  the  old  officers appointed tinder the Tax Rules and not by the  corresponding officers  under  the Income-tax Act,  the  assessments  were invalid  and  the  Validating Act could  not  validate  them because,  (i) the Validating Act itself  was  discriminatory and was hit by Art. 14, and (ii) because in any case it  did not  apply  to  the present  assessments.   The  High  Court repelled  all  these  contentions  and  dismissed  the  writ petition.  On appeal by certificate this Court, Held:     (i)  The  amendments which were made  in  the  Tax Rules on December   28,  1948,  could be  justified  on  the basis of Act 1 of 1948. All that   s.  5  of Act 1  of  1948 requires is the publication of the 859 regulation   made  thereunder  and  their  being   made   by Government,  and that has been complied with in  this  case. There is no other formality required for making  regulations and  therefore,  even  though there was  a  mistake  in  the opening  part of the Notification of December 28, 1949,  the amendments made in the Tax Rules can be upheld under s. 5 of Act 1 of 1948 as regulations. (ii) Even  a  vested right of appeal can be  taken  away  by express  legislation or by legislation which, though it  may not  expressly  repeal the vested right of appeal,  has  the effect of such repeal by necessary implication.  Though  the right  of  second appeal on facts is taken away by  the  new rule 13 inserted in the Tax Rules, such right is taken  away by  legislation  by necessary  intendment.   Therefore,  the right of second appeal after the amendment must be  confined in  all  cases by necessary intendment to questions  of  law only. (iii)     The  Validating  Act is not hit by Art.  14.   The present  cases are with reference to years 1940-48, that  is before  the accounting year ending on March 31,  1949.   The assessments  in  these  cases were carried  on  by  the  old officers   under  the  old  law  and  the   Validating   Act specifically   validates   such   assessments.    In   these circumstances it cannot be said that these assessments  have not been validated by the Validating Act.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 316 of 1962. Appeal from the judgment and order dated January 2, 1959  of the  Madhya Pradesh High Court (Indore Bench) at  Indore  in Civil Misc.  Case No. 20 of 1955.

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M.   C. Setalvad, G. S. Pathak, B. Dutta, J. B. Dadachanji, O.   C. Mathur and Ravinder Narain, for the appellant. B. Sen and I. N. Shroff, for the respondents. February 20, 1964.  The Judgment of the Court was  delivered by WANCHOO,  J.-This is an appeal by special leave against  the judgment  of the Madhya Pradesh High Court.  It  raises  the question of the validity of certain provisions of the Indore Industrial Tax Rules, 1947, (hereinafter referred to as  the Tax  Rules)  and assessments made thereunder for  the  years 1940 to 1948.  The appellant is a cotton mill and in 1927  a tax was imposed on cotton mills in Indore in Holkar State by the  then Ruler in respect of profits, gains and  income  of such  mills.  This was done under the Tax Rules  promulgated by the Ruler of Indore.  The procedure under 860 the  Tax Rules provided for a board of  assessing  officers. The  orders of the board were open to appeal to  the  Member in-charge  of  Commerce  and  Industry  Department.    There after a second appeal was provided to the Government.   Rule 17 of the Tax Rules further provided that the power of  mak- ing rules was vested in the Government and such power shall. except on the first occasion of exercise thereof, be subject to the condition of previous publication.  Rule 18  provided that Rules made under r. 17 shall be published in the  State Gazette and thereafter shall have the force of law.  Rule 19 provided that the Member in-charge of Commerce and  Industry Department  shall  have power to make subsidiary  rules  not inconsistent  with  the  Tax Rules.  On May  28,  1948,  the Holkar State merged to form the State of Madhya Bharat.   On July 19, 1948, the State of Madhya Bharat acceded to  India. Ordinance No. 1 of 1948 was promulgated by the Rajpramukh of the new State of Madhya Bharat to provide for the peace  and good government of the State.  This Ordinance was superseded by Act 1 of 1948 which came into force on December 13, 1948. Section  4  of the Act provided for the continuance  of  the existing  laws  of any covenanting States or  of  any  State which merged in the State of Madhya Bharat until repealed or amended  under the provisions of the Act.  Section 5 of  the Act  provided  that  the  Government  may  by   notification published in the Government Gazette make regulations for the peace  and good government of all the territories which  had already  been  included  in the new State or  which  may  be included  in  it under the provisions of s. 3  of  the  Act. Such  regulations were to have the force of law unless  they were  repugnant to any Act or law or Ordinance made  by  the Rajpramukh, in which case to the extent of their  repugnancy they  would  be  void.  Further it was  provided  that  such regulations may repeal or amend any law already in force  in any State before its administration was taken over or before it  was,  as  the  case may be, merged  in  the  new  State. Finally   the  section  provided  that  the  right  of   the Rajpramukh  to  make  Ordinances  for  the  peace  and  good government  of  the  new State or of the  States  which  may become merged in the said State would remain unaffected- In view of the merger of the Holkar State into the State  of Madhya Bharat, some of the provisions of the Tax Rules  861 had to be changed to bring them into line with the new  set- up.  Consequently, on December 28, 1949, the  Government  of Madhya  Bharat issued a notification under r. 18 of the  Tax Rules  purporting to make rules under r. 17 thereof.   These rules  made certain amendments in the Tax Rules.  It is  not necessary to refer to all the amendments as we are concerned here  only with three amendments.  The first  amendment  was

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that  instead  of  the  board  making  the  assessment.  the assessment  was  to be made by an  assessing  officer.   The second  amendment  was that the appeal  from  the  assessing officer was to be heard by an officer appointed from time to time by the Minister in-charge of the Finance Department  in place  of  the  Member in-charge of  Commerce  and  Industry Department.  The third amendment was with respect to  second appeals.   The  amendment  provided  that  instead  of   the Government  hearing  second  appeals  which  under  the  old provision  lay both on facts and law, second appeals  there- after were to be heard on a point of law by the High  Court. Then came the Constitution of India on January 26, 1950  and the State of Madhya Bharat became one of Part B States.   In the  Finance Act No, 25 of 1950, which came into force  from April 1, 1950 and applied to Madhya Bharat also, a provision was made that any law relating to income-tax or super-tax or tax  on profits of business in any part B State shall  cease to have elect except for the purpose of levy, assessment and collection  of  income-tax and super-tax in respect  of  any period not included in the previous year for the purpose  of assessment  under the Indian Income Tax Act, No. XI of  1922 for the year ending on March 31, 1951 or for any  subsequent year  or,  as  the case may be,  the  levy,  assessment  and collection  of  the  tax  on profits  of  business  for  any chargeable  accounting period ending on or before March  31, 1949.  The effect of this was that the Tax Rules came to  be repealed from after the accounting year ending on March  31, 1949. and assessment could only be made under the Tax  Rules upto  the end of the accounting period ending on  or  before March  31, 1949.  A further provision was also made  in  the Finance Act, 1950, that any reference in any such law to  an officer, authority, tribunal or court shall be construed  as a   reference  to  the  corresponding  officer,   authority, tribunal or court- appointed or constituted under the Income Tax  Act.   The result of this provision was that  even  the assessments 862 for  the  years previous to the accounting  year  ending  on March  31,  1949  could only be made  by  the  corresponding authorities under the Income Tax Act, and the appeals  would be  to  the corresponding authorities under the  Income  Tax Act; no levy and assessment could be made by the authorities under the repealed law and no appeal would lie to the autho- rities or court under that law.  It seems however that  this provision of the Finance Act as to the authorities competent to  make assessments was lost sight of with the result  that assessments  were  made  for the years  in  dispute  in  the present  appeal  which are all before  the  accounting  year ending  on March 31, 1949, by the authorities under the  Tax Rules, as they were before their repeal.  Consequently  when this  mistake was discovered, Parliament passed  the  Madhya Bharat  Taxes  on Income (Validation) Act, No.  38  of  1954 (hereinafter  referred  to as the Validating Act), s.  3  of which provided that " notwithstanding anything contained  in the  first proviso to sub-section (1) of section 13  of  the Finance  Act,  all proceedings taken, assessments  made  and other  acts  and things done (including orders made)  by  or before  any officer, authority, tribunal or court acting  or purporting  to act under the relevant Madhya Bharat  law  in connection  with the levy, assessment and collection of  any tax  due,  under  any such law in respect  of  the  relevant period  shall be deemed always to have been valid and  shall not  be  called  in question on the ground  only  that  such proceedings  were  not taken, assessments were not  made  or acts or things were not done by or before the  corresponding

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officer,  authority,  tribunal or court referred to  in  the said  proviso."  Section  4 of the  Validating  Act  further provided  that  "if immediately before the  commencement  of this  Act,  any  proceedings of the nature  referred  to  in section  3  are  pending  before  any  officer,   authority, tribunal  or  court acting or purporting to  act  under  the relevant  Madhya Bharat law, such proceedings may,  notwith- standing  anything  contained in the first proviso  to  sub- section  (1) of section 13 of the Finance Act, be  continued and  completed in accordance with the provisions of the  re- levant  Madhya  Bharat law, and the provisions of  the  said proviso  shall not apply, and shall be deemed never to  have applied,  in  relation to any such  proceedings."  What  had happened in the present case and in some other cases  relat- ing to laws which corresponded to the Indian Income-tax  863 Act  was  that  the authorities under  the  Tax  Rules  made assessments in spite of the provisions in the Finance Act by which  such assessments should thereafter have been made  by the  corresponding authorities under the  Indian  Income-Tax Act,  state  and that is why the Validating Act  had  to  be passed. The  appellant  challenged the validity of  the  assessments made against it under the Tax Rules by a writ petition filed in  the Madhya Bharat High Court in 1955, on  the  following grounds:- (1)  The  amendments of the Tax Rules on December  28,  1949 were  invalid as such amendments could not be made under  r. 17 of the Tax Rules, as was purported to be done. (2)  Even if the amendments made on December 28, 1949  were good, they could not have retroactive effect  and could not take away the vested right of appeal. (3)  As after the Finance Act, 1950, assessments were made  by the old officers appointed under the Tax Rules  and not  by the corresponding officers under the  Indian  Income Tax Act, the assessments were invalid and the Validating Act could not validate them (firstly) because the Validating Act itself  was  discriminatory  and  was hit  by  Art.  14  and (secondly)  because  in  any case it did not  apply  to  the present assessments. The High Court repelled all the contentions raised on behalf of the appellant and dismissed the writ petition.  Thereupon the appellant applied to the High Court for a certificate of fitness,  which was granted; and that is how the appeal  has come  up  before  us.  We propose to deal  with  the  points raised in the order in which they have been set out above. Re. (1): The  first question is about the validity of the  amendments made in the Tax Rules on December 28, 1949.  It is true that the  notification by which amendments were made purports  to have  been published under r. 18 of the Tax Rules read  with r. 17.  The argument on behalf of the appellant 864 is that r. 17 of the Tax Rules must be treated on a par with provisions in a statute which provide for framing of  rules, and  these  rules  are  subordinate  legislation  made   for carrying   out the purposes of the statute, and the power to frame  such rules does not include the power to  modify  the parent  law under which the rules have to be framed.  We  do not think it necessary for present purposes to consider this argument,  for we are of opinion that the  amendments  which were  made  in  the Tax Rules on December 28,  1949  can  be justified on the basis of Act 1 of 1948, which was passed on December  13, 1948 by the Rajpramukh.  That Act, as  already indicated,  provided  by  s.  5  that  the  Government,   by

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notification  published in the Government gazette, may  make regulations  for  the peace and good government of  all  the territories  which had been included in the State of  Madhya Bharat  or which may be included in it under the  provisions of  s.  3 of the Act.  It also provided for  the  repeal  or amendment  by regulation of any law already in force in  any State before its administration was taken over or before  it was.  as the case may be, merged in the United States.   The Government  had therefore the power to amend the  Tax  Rules under  s.  5(1) read with s. 5 (3) of Act 1  of  1948.   The notification  of December 28, 1949 by which  the  amendments were made was published in the gazette of the Madhya  Bharat State and the amendments were made by the Government.  It is true that in the opening part of the notification it is said that the amendments were made under r. 17 of the Tax  Rules; but  that in our opinion would not conclude the matter,  for if the Government had the power to make amendments under Act 1  of 1948, the amendments in the Rules could  be  justified under  that  power in spite of the wrong words used  in  the opening  part of the notification of December 28, 1949.   It is  well settled that merely a wrong reference to the  power under  which certain actions are taken by  Government  would not per se vitiate the actions done if they can be justified under  some  other power under which  the  Government  could lawfully  do  these  acts.   It  is  quite  clear  that  the Government had the power under s. 5 (1) and (3) of Act 1  of 1948 to amend the Tax Rules, for that was a law in force  in one  of  the  merged  States.  The  only  mistake  that  the Government  made  was  that  in  the  opening  port  of  the notification  s.  5 of the Act was not referred to  and  the noti-  865 fication  did not specify that the Government was  making  a regulation  under  Act 1 of 1948.  But that in  our  opinion would  make no difference to the validity of the  amendments if the amendments could be validly made under s. 5 of Act  J of  1948.  It is not disputed that the amendments  could  be validly made under s. 5 of Act 1 of 1948.  We are  therefore of opinion that the mere mistake in the opening part of  the notification in reciting the wrong source of power does  not affect  the  validity of the amendments made.  It  is  urged that the Government knew that it could only make regulations under  s. 5 and it had made regulations under s. 5 of Act  1 of 1948 in certain cases.  Even if that be so, there can  in our opinion be no doubt about the validity of the amendments made  if the Government had power to make them, even  though there was a mistake in the opening part of the  notification publishing  the amendments.  All that s. 5 of Act 1 of  1948 requires   is  the,  publication  of  the  regulation   made thereunder  and its being made by Government; and  that  has been  complied  with  in  this  case.   There  is  no  other formality  required for making a regulation and we are  them fore of opinion that even though there was a mistake in  the opening  part of the notification of December 28, 1949,  the amendments made in the Tax Rules can be upheld under s. 5 of Act  1  of 1948 as a regulation.  We  therefore  reject  the contention under this head. Re. (2): Then  it  is urged that even if the amendments  to  the  Tax Rules  are  good,  they could not affect  vested  rights  of appeal provided under the old law before the amendments  and therefore  insofar  as  the amendments  affect  this  vested right,  they are of no effect.  Now it is well settled  that even  a vested right of appeal can be taken away by  express legislation  or  by  legislation which, though  it  may  not

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expressly repeal the vested right of appeal, has the  effect of  such  repeal by necesary implication.  We  have  already pointed out that in view of the coming into existence of the new State of Madhya Bharat, amendments to the Tax Rules  had become  necessary in order to bring them into line with  the structure of the now State.  The three main amendments  made in the Tax Rules have already been set’ out by us.’  Learned counsel for the 134-159 S.C.-55 866 appellant does not attack two of them, namely, those  relat- ing to the assessment officer and the first appeal  provided by the amendments.  The attack is on the amendment of r.  13 of  the Tax Rules providing for a second appeal.  Under  the old  Rules,  a second appeal lay to the Government  both  on fact  and law; under the new law, it lay to the  High  Court only  on  a question of law.  The quarrel is  not  with  the forum  of the second appeal; what is urged is that  the  new rule  does not allow a second appeal on a question  of  fact while  the old rule did.  That is undoubtedly so.  But  con- sidering the set up in which the amendments had to be  made, it  seems to us that even if the new rule cannot be read  as an express provision taking away the right of second  appeal on facts, it must in the circumstances be held that it  does take away that right by necessary intendment.  The new  rule provided for a second appeal like the old rule but  confined it  to a question of law.  The necessary implication of  the new rule therefore was that though a second appeal will con- tinue  to  lie  as before its scope was  cut  down  only  to questions  of law.  We are therefore of opinion that  though the right of second appeal on facts is taken away by the new rule 13 inserted in the Tax Rules, such right is taken  away by   legislation   by   necessary   intendment.    In    the circumstances  we  are of opinion that the right  of  second appeal after the amendment must be confined in all cases  by necessary   intendment  to  questions  of  law  only.    The contention under this head also fails. Re. (3): Coming now to the last point with respect to the  Validating Act, we have not been able to understand how the  Validating Act  can  be  said  to  be  discriminatory  in  nature.    A Validating Act is passed only when certain things have  been done  which  require validation.  This is exactly  what  the present  Validating Act has done and we fail to see on  what grounds it can be said to be discriminatory.  Even when  the Finance  Act of 1950 was passed it would have been  open  to Parliament  to  leave the old assessments to be  carried  on under the old procedure and by officers appointed under  the old law and such action could not be called  discriminatory. for the simple reason that the old assessments  867 stand on a different footing from new assessments after  the new  law  comes  into force.  It  is  true  that  Parliament provided otherwise in this case and the Finance Act of  1950 said  that  the old assessments would be carried on  by  the corres- ponding officers under the Indian Income Tax Act, By mistake  however that provision was overlooked and  the  old assessments were made by the old officers under the old law. All  that Parliament did by the Validating Act was to  allow the old assessments to be made under the procedure  provided under  the old law and we can see no discrimination  in  the Validating Act on account of this fact.  We are therefore of opinion  that  the  Validating Act is not hit  by  Art.  14. Further we have not been able to understand how the  valida- tion  is  of  no  effect so far as  the  present  cases  are concerned.   The present cases are with reference  to  years

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1940-48, that is before the accounting year ending on  March 31, 1949.  The assessments in these cases were carried on by the  old officers under the old law and the  Validating  Act specifically   validates   such   assessments.    In   these Circumstances we have not been able to understand how it can be  said that these assessments have not been  validated  by the  Validating  Act.  The contention under this  head  must therefore also fail. The appeal fails and is hereby dismissed with costs. Appeal dismissed.