Case: K. S. Venkataraman &amp; Co Vs. State Of Madras

Ayyar, J., in the second case are in the nature of dicta; and in the third case the Madras High Court expressed the view that the bar created by S. 67 of the Income-tax Act did not prevent a High Court in a petition under Art. 226 of the Constitution from investigating the validity of a complaint that the fundamental rights of the applicant were infringed by the action of a taxing authority. In proceedings from assessment of tax, the applicant raised no question of vires of S. 3 of the Income-tax Act, and a reference under S. 66 of the Act was answered by the High Court. Thereafter in a petition under Art. 226 of the Constitution he challenged the validity of the assessment on the ground that the discretion given to the Income-tax Department to assess members of an association separately or collectively as an association infringed the guarantee of equal protection of laws. The High Court of Madras in considering the plea that there was a bar of res judicata observed that the Income-tax Tribunal was incompetent to entertain a plea about the vires of the statute under which it functioned. But beyond observing at p. 151. "We wish to make it very clear that it is not the provision (within the province?) of the department or even the statutory Tribunal, which is really the creation of the status (statute?) to entertain any objection to a piece of legislation, as being ultra vires or unconstitutional * *", nothing else was stated.66. It was submitted that this Court in 1951 SCR 1 : (AIR 1951 SC 23 ) has refused to accept Raleigh Investment Companys case 74 Ind App 50 : (AIR 1947 PC 78 ) as correctly decided. In the State of Tripuras case, 1951 SCR 1 : (AIR 1951 SC 23 ) the Income-tax Officer, Dacca served a notice upon the Manager of an Estate belonging to the Tripura State but situated in Bengal, calling upon the latter to furnish a return of the agricultural income under the Bengal Agricultural Income-tax Act, 1944. The State by its Ruler sued the Province of Bengal and the Income-tax Officer in the Court of the Subordinate Judge of Dacca for a declaration that the Act. in so far as it purported to impose liability to pay agricultural income-tax on the plaintiff was ultra vires and void, and for a perpetual injunction restraining the defendants from taking any steps to assess the plaintiff. After the partition of India the suit was tried by the Subordinate Judge, Alipore, in the State of West Bengal. The High Court of Calcutta held that the Court of Alipore had no jurisdiction to proceed with the suit. This Court in appeal held that the suit did lie in the Court of the Subordinate Judge, Alipore, and that a suit for injunction being not one to set aside or modify any assessment made under the Act, S. 65 of the Bengal Agricultural Income-tax Act, 1944 did not bar the suit, which was one in respect of an actionable wrong. Patanjali Sastri, J., delivering the majority judgment of this Court observed at p. 14 (of SCR) : (at p. 28 of AIR) :" * * * that the suit in question is not a suit to set aside or modify an assessment made under the Act, as no assessment had yet been made when it was instituted, and the subsequent completion of the assessment was made by the Pakistan Income-tax Authorities on terms agreed to between the parties and sanctioned by the Court." * *The gist of the wrongful act complained of in the present case is subjecting the plaintiff to the harassment and trouble by commencing against him an illegal and unauthorised assessment proceeding which may eventually result in an unlawful imposition and levy of tax."Mukherjea, J., who delivered a supplementary judgment agreed with Patanjali Sastri J. It is expressly recorded in the judgment that the correctness of the decision in Releigh Investment Companys case, 74 Ind App 50 : (AIR 1947 PC 78 ) was not challenged before the Court. Fazl Ali J., took a different view relying upon the principle of Releigh Investment Companys case, 74 Ind App 50 : (AIR 1947 PC 78 ), observing that it could not have been the intention of the Legislature that though the officer is not liable to be restrained from proceeding with an assessment, the provision which ensures such a result may be rendered nugatory by permitting an injunction to be claimed against the Provincial Government or the State. The question whether a suit to obtain refund of tax based on a provision of a statute alleged to be ultra vires was maintainable did not fall to be determined in the State of Tripuras case 1951 SCR 1 : (AIR 1951 SC 23 ) and was not decided.67. In our view, the authority of the taxing officer is derived from the investment of power under the Act which he is authorized to administer. If there is no defect in the enactment of a taxing statute, in so far as it authorises the constitution of a Tribunal, the Tribunal invested with authority in the matter of assessment and collection of tax, would in our judgment have power to entertain an objection and to decide whether a provision of the Act which it is called upon to administer is ultra vires and hence unenforceable.68. The Deputy Commercial Tax Officer had therefore power to assess the transaction of sale in works contract. Assuming that he erred in the interpretation of the contract or the relevant statutory provision, the order was on that account not without jurisdiction. It could only be set aside by appropriate proceedings under the Madras General Sales Tax Act, 1939, and not otherwise. The suit was therefore barred by the scheme of the Act and S. 18-A which was later incorporated by Act 6 of 1951.69. This appeal must therefore fail and is dismissed with costs.ORDER70.

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

Explanation:
1[ds]Indeed, in view of the said machinery, the Judicial Committee even doubted whether the enactment of S. 67 was necessary to exclude jurisdiction. In its opinion it was superfluous. The entire reasoning of the Judicial Committee was, therefore, based upon the assumption, that the question of ultra vires can be canvassed and finally decided through the machinery provided under the concerned statute. The interpretation of S. 67 of the Income-tax Act was also based on the comprehensive scope given by the Judicial Committee to the said machinery provided under the said Act. Is this assumption correct? If not, as the Judicial Committee itself realised, the construction put upon S. 67 of the Income-tax Act would not also behave considered these decisions in some detail as it was contended that the present question was finally decided by some of the decisions of this Court. But a perusal of the judgments discloses that the said question, namely, whether a suit would lie when an assessment was made on the basis of a provision which was ultra vires the Constitution, was left open and indeed in one of the decisions clear observations were made questioning the correctness of the decision of the Privy Council in so far as it held that a suit would not be maintainable even in such a case. The question left open directly calls for a decision in this appeal.The legal position that emerges from the discussion may be summarized thus : If a statute imposes a liability and creates an effective machinery for deciding questions of law or fact arising in regard to that liability, it may, by necessary implication, bar the maintainability of a civil suit in respect of the said liability. A statute may also confer exclusive jurisdiction on the authorities constituting the said machinery to decide finally a jurisdictional fact thereby excluding by necessary implication the jurisdiction of a civil court in that regard. But an authority created by a statute cannot question the vires of that statute or any of the provisions thereof whereunder if functions. It must act under the Act and not outside it. If it acts on the basis of a provision of the statute, which is ultra vires to that extent it wold be acting outside the Act. In that event, a suit to question the validity of such an order made outside the Act would certainly lie in a civil court.On the said legal basis it follows that in the instant case the sales-tax authorities have acted outside the Act and not under it in making an assessment on the basis of the relevant part of the charging section which was declared to be ultra vires by thisthe State Legislature has no legislative power to impose a tax in respect of indivisible works contracts, the argument proceeds, it cannot indirectly confer on a sales-tax authority power to impose a tax on such a transaction and impose a bar against the maintainability of a suit to question its validity. This certainly raises an important question: but, in the view we have expressed on the construction of S. 18-A of the Act, this does not fall for our decision in the presentCity Civil Court Judge held that the suit was governed by Art. 62 of the Limitation Act and, on that basis, declared that the suit for the recovery of the amounts that were paid prior to three years from the date of the suit was barred by limitation. But the High Court, in the view it had taken on the question of the maintainability of the suit, did not express any opinion on the said question.Learned counsel for the appellants contends that the suit was for the recovery of the amounts paid to the respondent under a mistake of law and that such a suit is governed by Art. 96 of the Limitation Act. This court in State of Kerala v. Aluminium Industries Ltd., Kundara, Quilon, Civil Appeal No. 720 of 1963 dated 21-4-1965 (SC) accepted that contention and held that to such a suit Art. 96 of the Limitation Act would apply. Article 96 of the Limitation Act prescribes a period of limitation of 3 years for relief on the ground of mistake when the mistake became known to the plaintiff. When did the plaintiffs come to know of the mistake in the present case? In the plant it is alleged that the plaintiffs came to know of the mistake when the decision in Gannon Dunkerleys case, 1954-5 STC 216 : (AIR 1954 Mad 1130  ) was pronounced by the High Court of Madras on April 5, 1954.The respondent in the writtenstatement did not deny that fact. The suit was filed on March 23, 1955 which was within 3 years from the date of the said knowledge and, therefore, it was clearly within time under Art. 96 of the Limitation Act.In the result, the appeal is allowed. There will be a decree in favour of the plaintiffs as prayed for with costs throughout.The definition of "sale" in the Act cannot be read divorced from the scheme of the Act. and the restrictions upon the power of the Legislature which enacted it. There are diverse provisions in the Act which restrict the power of the taxing authorities to levy tax on sale or purchase of goods. For instance, S. 4 expressly enacts that the provisions of the Act shall not apply to the sale of electrical energy motor spirit and manufactured tabacco and of any other goods on which duty is or may be levied under the Madras Abkari Act, 1886, the Madras Prohibition Act, 1937, or the Opium Act 1878. Exemption is also granted in certain cases by S. 5 of the Act and authority is conferred by the Act upon the executive Government to make exemptions from or reductions in rates in respect of tax payable on the sale of any specified classes of goods or by any specified classes of persons in regard to the whole or any part of their turnover. These restrictions upon the power of the taxing authorities are imposed expressly by the statute itself, the other restrictions to which we have already referred, are restrictions which are implied by the constitutional limitations. But on that account there is no real difference between the quality of the restrictions. The definition clause and the charging section operate only on sales which may appropriately be called sales of goods under the general law of goods which are not exempted by the Act and are not taken out of the taxing power of the State by the constitutional or other provisions. Apparently wide words of the definition clause and the charging section will not on account of these restrictions be rendered ultra vires or invalid; the words will be construed so as to confer power upon the taxing authorities in assessing tax only within the limited field.