Case: Abdullabhai M. Bhagat &amp; Others Vs. Income Tax Officer, Special Circle, Madras

1935, and the power to tax income was contained in item 54 of List 1 of the Seventh Schedule which was as follows:-"Taxes on income other than agricultural income." Part VII of the Government of India Act, 1935, deals with Finance, Property and Suits and the first chapter deals with Finance. The relevant section which has been relied upon by the petitioners, i.e., S. 138(1) of that Act is that Part which deals with Distribution of Revenues between the Federation and the Federal Units. That section reads:-Section 138(1) "Taxes on income other than agricultural income shall be levied and collected by the Federation,......... Provided that (a) ...... ...... ...... (b) the Federal Legislature may at any time increase the said taxes by a surcharge for Federal purposes and the whole proceeds of any such surcharge shall form part of the revenues of the Federation." It was submitted that according to this section the power of the Federal Legislature to impose a surcharge was only for Federal purposes; that by S. 8(1) of the Finance Act, 1942, and similar provisions in the other Finance Acts of the three following years, the surcharge had been levied "for the purposes of the Central Government" and that the terms "the purposes of the Central Government" and "for Federal purposes were not the same but were two different concepts. Section 311 of the Government of India Act, 1935, deals with Interpretation but "Federal purposes" is not defined in that section. In sub-sec. (3) of S. 313 which is in Part XIII, dealing with Transitional Provisions, it is provided:- Section 313(3) "References in the provisions of this Act for the time being in force to the Governor-General and the Federal Government shall, except as respects matters with respect to which the Governor-General is required by the said provisions to act in his discretion be construed as references to the Governor-General in Council, and any reference to the Federation, except where the reference is to the establishment of the Federation, shall be construed as a reference to British India, the Governor-General in Council, or the Governor-General, as the circumstances and the context may require." On the basis of this section it was argued that the term "Federal purposes" in S. 138 (1) (b) of the Government of India Act, 1935, means the purposes of the Federal Government, i.e., of the Governor-General in Council or the Governor-General as the case may be and that in the context it is a term of lesser amplitude than the term "purposes of the Central Government". "Central Government" in S. 3(8ab)(a) of the General Clauses Act, 1897, was defined as follows:- Section 3 (8ab) "General Government shall- (a) in relation to anything done or to be done after the commencement of Part III of the Government of India Act, 1935, mean the Federal Government;"."Federal Government" was defined in the General Clauses Act in S. 18a as follows:- Section 18A "Federal Government shall- (a) in relation to anything done or to be done after the commencement of Part III of the Government of India Act, 1935, but before the establishment of the Federation, mean, as respects matters with respect to which the Governor-General is by and under the provisions of the said Act for the time being in force required to act in his discretion, the Governor-General, and as respects other matters, the Governor-General in Council; and shall include- (i) in relation to functions entrusted under section 124(1) of the said Act to the Government of a Province, the Provincial Government acting within the scope of the authority given to it under that sub-section; and (ii) in relation to the administration of a Chief Commissioners province, the Chief Commissioner acting within the scope of the authority given to him under section 94(3) of the said Act;". From these sections it was argued that the term "Federal Government" in the Government of India Act, 1935, only meant the Governor-General or the Governor-General in Council as the case may be but under the definition in the General Clauses Act the term "Central Government" did not only denote the Governor-General or the Governor-General in Council as the case may be but also included for certain purposes the Provincial Governments acting within the scope of the authority given to them under S. 124(1) of the Government of India Act, 1935. This argument, in our opinion, is wholly fallacious. 4. The power of the Federal Legislature to legislate was conferred by S. 100, sub-ss. (1) and (2). The first sub-section deals with the power of the Federal Legislature to legislate in regard to items contained in the First List which was exclusively within the power of the Federal Legislature. The Federal Legislature therefore had the power to legislate in regard to any subject contained in List I and item 54 relating to taxes on income was in that List. It has been held that the items have to be given the widest possible amplitude. But it was submitted that the power under item 54 howsoever wide it may be is subject to the limitation contained in S. 138(1), proviso (b).Now "Federal purposes" is not defined in the Government of India Act, 1935, nor is it defined in the General Clauses Act. But there is sufficient indication in S. 138 itself that the amounts recovered as surcharge were to form part of the Revenues of the Federation and such Revenues were to be expended for the purposes there indicated. Under S. 124(4) of the Government of India Act, 1935, where powers and duties are conferred by S. 124 upon a Province or a Federated State there shall be paid by the Federation to the Province or the Federated State such sum as may be agreed...........Hence by the definitions given in the General Clauses Act no different concept of the words "purposes of the Central Government" was intended from what was intended by the use of the words "Federal purposes" in S. 138(1)(b) of the Government of India Act, 1935.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]4. The power of the Federal Legislature to legislate was conferred by S. 100, sub-ss. (1) and (2). The first sub-section deals with the power of the Federal Legislature to legislate in regard to items contained in the First List which was exclusively within the power of the Federal Legislature. The Federal Legislature therefore had the power to legislate in regard to any subject contained in List I and item 54 relating to taxes on income was in that List. It has been held that the items have to be given the widest possible amplitude. But it was submitted that the power under item 54 howsoever wide it may be is subject to the limitation contained in S. 138(1), proviso (b).Now "Federal purposes" is not defined inthe Government of India Act,, nor is it defined in the General Clauses Act. But there is sufficient indication in S. 138 itself that the amounts recovered as surcharge were to form part of the Revenues of the Federation and such Revenues were to be expended for the purposes there indicated. Under S. 124(4) ofthe Government of India Act,, where powers and duties are conferred by S. 124 upon a Province or a Federated State there shall be paid by the Federation to the Province or the Federated State such sum as may be agreed...........Hence by the definitions given in the General Clauses Act no different concept of the words "purposes of the Central Government" was intended from what was intended by the use of the words "Federal purposes" in S. 138(1)(b) ofthe Government of India Act,