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 section K Aiyangar for the appellants
K N Rajagopal Sastri and D Gupta for the respondents
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 section 142c 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 article 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 article 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 vs Madan Gopal Kabra 1
The present appellant and fourteen others filed petitions under article 226 of the Constitution urging fresh grounds by a later amendment
Their contention was that section 142c 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 article 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 142c 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  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 142c 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
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  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


Summary:
The appellant was using certain premises in Calcutta for storing rice flour etc
without taking out any license under section 3861a of the Calcutta Municipal Act 1923
The respondent filed a complaint against the appellant for a contravention of section 3861a
The trial Magistrate acquitted the appellant holding that the provisions of section 3861a neither in terms nor by necessary implication bound the Government whom the appellant represented
In revision the High Court held that the Government was bound by a statute unless the legislature excluded it expressly or by necessary implication
The High Court declined to follow the decision of the Privy Council in L R 73 1
A 271 that the general principle applicable in England applied to Indian legislation also
Held that the State was not bound by the provisions of section 3861a of the Calcutta Municipal Act 1923 and that the appellant was not liable to be prosecuted for a contravention of this section
Per Sinha C J Imam and Shah jj
The law applicable to India before the Constitution was as authoritatively laid down by the Privy Council in L R 73 I A 271
The Constitution has not made any change in the legal position
On the other hand it has clearly indicated that the laws in force before January 26 1950 shall continue to have validity even in the new set up except in so far as they were in conflict with the express provisions of the Constitution
The rule of interpretation of statutes that the State is not bound by a statute unless it is so provided in express terms or by necessary implication is still good law
Province of Bombay vs Municipal Corporation of the City of Bombay 1946 LR 73 I A 271 applied
Bell vs The Municipal Commissioners for the City of Madras Mad 457 disapproved
The Corporation of Calcutta vs Sub Postmaster Dharmatala Post Office  United States of America vs 159 United Mine Workers of America   United States of America vs Reginald P Wittek 1949 93 L Ed
1406 Less Larson vs Domestic and Foreign Commerce Corporation  and Roberts vs Abern 1904 I C L R 406 referred to
There is nothing in the Act to indicate that the State was bound by it by necessary implication nor is there anything in it to show that if section 386 were not held to apply to the State the law would lose it efficacy or that its working would be hampered in any way
Per Sarkar J
The rule that the crown is not bound by the provisions of any statute unless it is directly or by necessary implication referred to is really a rule of construction of statutes and is not dependent on royal prerogatives
It has been applied by courts in India all along before the Constitution and there is no reason why it should not be applied to the interpretation of statutes after the Constitution
Attorney General vs Donaldson   Coomber V  justices of Berks   Roberts vs Ahern 1904 I CLR 406 United States vs United Mine Workers of America   United States vs The State of California  Bell vs The Municipal Commissioners for the City of Madras Mad 457 Mersey Docks vs Cameron  and Coomber vs Justice of Berks  Greig vs University of Edinburgh 1868 L R
I H L SC 348 and Cooper vs Hawkin section  referred to
Section 3861a does not bind the Government by necessary implication the fact that certain provisions of the Act expressly exempt the Government does not raise the necessary implication
Nor would the purposes of the Act be defeated if the Government were not bound by it
Hornsey Urban Council vs Hennel and Province of Bombay vs Municipal Corporation Bombay 1946 LR 73 1
A 271 relied on
Per Wanchoo J
The rule of construction which is based on the royal prerogative as known to the common law of England cannot be applied to India now when there is no crown in India and when the Common law of England is not applicable
The proper rule of construction which should be applied now is that the state is bound by a statute unless it is exempted expressly or by necessasy implication
Province of Bombay vs Municipal Corporation of the City of Bombay 1946 L R 73 1
A 271 not applied
United States of America vs United Mine Workers of America Etc  United States of America vs Reginald P Wittek   Jess Larson vs Domestic and Foreign 160 Commerce Corporation   H Snowden Marshall vs People of the State of New York 192O 65 L Ed 315 and Guaranty Trust Company of New York vs United States of America   referred to
The Calcutta Municipal Act 1923 does not specifically exempt the State from its provisions As the State cannot be sentenced to imprisonment it is exempt by necessary implication from all penal provisions providing for sentences of imprisonment or death
Further where a statute provides for a fine and the fine goes to the State the State is exempted from the provisions by necessary implication as it could never be the intention that such a prosecution should be launched
The prosecution in the present case is under section 488 which provides for a fine for a breach of section 386 and the fine when imposed and realised goes to the State
Consequently the State is exempt from the penal provisions of section 488 of the Act by necessary implication