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PETITIONER: RAJPUTANA MINING AGENCIES LTD.

       Vs.

RESPONDENT: UNION OF INDIA AND ANOTHER.

DATE OF JUDGMENT: 31/08/1960

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. DAS, S.K. GUPTA, K.C. DAS SHAH, J.C. AYYANGAR, N. RAJAGOPALA

CITATION:  1961 AIR   56            1961 SCR  (1) 453  CITATOR INFO :  R          1962 SC 141  (3)  R          1971 SC1277  (12)  E          1984 SC  87  (8)

ACT: Income  Tax-Applicability  of enactment to  Part  B  States- Indian  Income-tax  Act, 1922 (11 of 1922),  as  amended  by Indian Income-tax (Amendment) Act (25 of 1953), S. 14(2)(C).

HEADNOTE: The  appellant, a private limited company, was  incorporated in 1954 in the former Kotah State which had integrated  with the  United States of Rajasthan in 1949.  The United  States of Rajasthan became State of Rajasthan, a Part B State.  The Indian  Finance Act, 1950, made the Indian  Income-tax  Act, 1922, applicable to Part B States with effect from April  1, 1950,  whereupon Rajasthan became a taxable territory.   The Income-tax (Amendment) Act, 1953, amended s. 14(2)(C) of the Indian  Income-tax  Act,  1922.   Thereupon  the  Income-tax authorities  sought  to tax the profits and  income  of  the appellant  for  the  assessment  year  1950-51  who  claimed exemption  under s. 14(2)(C) of the Indian  Income-tax  Act, 1922, as it stood before the amendment in 1953. The question for  decision  was whether in view of the decision  of  this Court  in  Madan  Gopal’s  case it was  still  open  to  the appellant to contend that the amendment operated from  April 1, 1950 and that income accrued prior to April x, 1950,  was still exempt although the exemption was withdrawn only  from April 1, 1950. Held, that the withdrawal of the exemption in the assessment year 1950-51 conversely affected the income of the  previous year 1949-50.  The application of the Indian Income-tax  Act made  Rajasthan  a taxable territory subject to  the  Indian Income-tax  law and Parliament was competent to enact a  new law  for the area, just as it did for the whole of the  rest of India. The  fiction in the amendment made in s. 14(2)(C)  made  the exemption in respect of liability to tax the income for  the year  1949-50 to disappear as if it had never  been  granted

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and obliterated the exemption.  The whole purpose and intent of  the  amendment  was  to  reach  this  result  from   the assessment  year  1950-51  onwards, and there  could  be  no saving.   The argument assumes the premise that the  Income- tax  Act was incorporated in the Indian Finance  Act,  1950, but   there  is  neither  precedent  nor  warrant  for   the assumption  that  when one Act applies another Act  to  some territory,  the latter Act must be taken to be  incorporated in the former Act.  It may be otherwise, if there were words to  show  that  the earlier Act is to be deemed  to  be  re- enacted by the new Act. 454 Union  of  India v. Madan Gopal Kabra,  [1954]  S.C.R.  541, referred.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 26 of 1956. Appeal  by Special Leave from the Judgment and  Order  dated the  22nd April, 1954, of the Rajasthan High Court  in  Writ Petition No. 76 of 1951. N.   C. Chatterjee, J. B. Dadachanji and M. S. K.  Aiyangar, for the appellants. K.   N. Rajagopal Sastri and D. Gupta, for the respondents. 1960.   August 31.  The Judgment of the Court was  delivered by HIDAYATULLAH J.-This is an appeal with the special leave  of this  Court  against  the  judgment of  the  High  Court  of Rajasthan dated April 22, 1954.  The appellant is a  private limited  Company,  which  was incorporated in  1945  in  the former  Kotah State.  The income-tax authorities  sought  to tax  its profits and income for the assessment year  1950-51 corresponding to the previous year, 1949-50.  The  appellant claimed exemption under s. 14(2)(c) of the Indian Income-tax Act,  1922,  as  it  stood before  the  amendment  in  1953, contending  that  the exemption stood good  even  after  the amendment.  This claim was rejected by the High Court, which was  moved under Art. 226 of the Constitution.   Hence  this appeal. Prior  to  the integration of Kotah State  into  the  United State  of Rajasthan in 1949, there was no income-tax law  in force  in Kotah State.  Till the formation of the  State  of Rajasthan,  there  was no such law in force in any  part  of Rajasthan,  except Bundi State.  The Indian Finance  Act  of 1950 made the Indian Income-tax Act, 1922, applicable to the whole  of India, except the State of Jammu and Kashmir,  and suitably amended the Indian Income-tax Act.  Rajasthan  then became, from April 1, 1950, a taxable territory. For the assessment year 1950-51, income-tax was sought to be imposed in the State of Rajasthan.  One                             455 Madan Gopal Kabra move the High Court under Art. 226 of  the Constitution   to  restrain  the  taxing  authorities   from claiming  tax  for  the  period  prior  to  April  1,  1950, contending  that  inasmuch as Rajasthan was  not  a  taxable territory before April 1, 1950, no tax for a period prior to that date could be demanded.  This Court in an appeal by the Department  against  the  decision  of  the  High  Court  of Rajasthan, which had accepted the contention, held that  the tax  was leviable.  It is not necessary to give the  details of  the  decision on that occasion.  The  judgment  of  this Court is reported in The Union of India v. Madan Gopal Kabra (1). The  present appellant and fourteen others  filed  petitions

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under Art. 226 of the Constitution, urging fresh grounds  by a later amendment.  Their contention was that s. 14(2)(c) of the  Indian  Income-tax Act, as it stood on April  1,  1950, granted  an  exemption,  and that  this  exemption  was  not affected by the amendment of the said provision in 1953 even though  the amendment was retrospective from April 1,  1950, unless  the Finance Act, 1950, which applied the  Income-tax Act to this area was also amended.  This contention was  not accepted  by  the High Court which  dismissed  the  petition under Art. 226, holding inter alia that this point was  also decided by this Court against Madan Gopal Kabra. In  this  appeal,  this point alone is  argued,  and  it  is contended  that  the  point  is  still  open  for  decision. Section 14(2)(c), as it stood before the amendment in 1953, read as follows: " The tax shall not be payable by an assessee-- (c) in  respect of any income, profits or gains accruing  or arising    to him within Part B  State  unless  such income, profits or gains are received or deemed to be received in or are  brought  into the taxable territories  in  the-previous year  by  or on behalf of the assessee,- or  are  assessable under section 12-B or section 42 ". The amendment provided "  In section 14 of the principal Act in clause (c) of  sub- section (2), for the words and letter 1 Part B State’ (1)  [1954] S.C.R. 541. 456 the  words    the  State  of  Jammu  and  Kashmir’  shall  be substituted  and  shall be deemed to have  been  substituted with effect from the 1st day of April, 1950 ". The result of this  amendment was described by this Court in Kabra’s  case (1) to be as follows: " It may be mentioned here that the exemption from tax under a. 14(2)(c) of the Indian Act of income accruing within Part B States was abrogated, except as regards the State of Jammu and Kashmir, by the amendment of that provision with  effect from the first day of April, 1950." Mr.  N. C. Chatterjee appearing for the  appellant  contends that  the  point cannot be considered to have  been  finally decided, and that the remark is descriptive only of what the Parliament  had purported to do.  He claims that  the  point can  and  should  be  reconsider.  ed.  In  support  of  his contention,  be urges that the effect of the passing of  the Indian Finance Act, 1950, and the application of the  Indian Income-tax  Act to Rajasthan and other Part B States was  to incorporate  the Indian Income-tax Act by reference  in  the Indian Finance Act with such modifications and amendments as were  then  made.  Any subsequent amendment  of  the  Indian Income-tax  Act  had  no  effect  on  the  original  Act  as incorporated by reference in the Indian Finance Act,  unless the  latter was suitably amended also.  The  argument  which did not find favour in Kabra’s case (1) was again  advanced, though  in another form.  It is that the amendment  operates from  April  1, 1950, and that the income accrued  prior  to April  1,  1950,  and  it  was  still  exempt,  because  the exemption was withdrawn only from April 1, 1950. In  our opinion, both the arguments have no  substance,  and the  position indicated by this Court in the  passage  cited earlier,  represents  the true state of the law.   To  begin with, the exemption is in respect of liability to tax in any year of assessment, and the exemption in the assessment year 1950-51  was in regard to the income in the  previous  year. For the same reason, the withdrawal of the exemption in  the assessment year 1950-51 conversely affected the (1)  [1954] S.C.R. 541.

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                           457 income  of the previous year, 1949-50 which is the  subject- matter of tax in this case.  The next argument  misconceives the  nature of the Indian Finance Act, 1950.  By  that  Act, the  Indian Income-tax Act was applied, but  the  Income-tax Act was not incorporated by reference in the Indian  Finance Act  to become a part of it.  The application of the  Indian Income-tax Act made Rajasthan a taxable territory subject to the  Indian Income-tax law, and Parliament was competent  to enact  a new law for the area, just as it did for the  whole of the rest of India.  The fiction in the amendment made the exemption to disappear as if it had never been granted,  and unless  there  was a saving, the amendment must  operate  to obliterate  the  exemption. in fact, the whole  purpose  and intent  of the amendment was to reach this result  from  the assessment  year  1950-51  onwards, and there  could  be  no saving.   The argument assumes the premise that the  Income- tax  Act was incorporated in the Indian Finance  Act,  1950, but   there  is  neither  precedent  nor  warrant  for   the assumption  that  when one Act applies another Act  to  some territory,  the latter Act must be taken to be  incorporated in the former Act.  It may be otherwise, if there were words to  show  that  the earlier Act is to be deemed  to  be  re- enacted  by the new Act.  The Indian Finance Act, 1950,  was concerned with the application of the Indian Income-tax  Act to  this  area, which it did by amending the  definition  of ’taxable  territory’  in the Indian Income-tax  Act  and  by applying that Act to the territory.  Thereafter, the  Indian Parliament  could amend the Income-tax Act  retrospectively, and  the  amendment  would apply also  to  the  new  taxable territory.   In  our  opinion, both the  arguments  are  not valid. The appeal fails, and will be dismissed with costs.                      Appeal dismissed. 458