Case: Commissioner, Quilon Municipality, Quilon, Andanother Vs. M/S. Harrisons &amp; Crosfield Ltd

assessable profits determined under the Indian Income-tax Act would be higher than those under the Travancore Income-tax Act. As no detailed comparison of the provisions of the Travancore Income-tax Act as in force at the date of the amendment with those of the Indian Income-tax Act was made during the argument, we are not in a position to say whether in fact the assessable profits under the Indian Income-tax Act, would have been larger than those under the Travancore Act at that time. We cannot, however, deny the possibility of the permissible deductions under the Indian Income-tax Act being fewer than those under the Travancore Act as it stood at the date of its repeal. Again, since the amendment introduces a different statute with reference to which assessable profits are to be ascertained it is possible that the amended proviso may enhance the tax liability not only of assessees falling within the first slab but also of assessees falling in the lower slabs.12. Mr. Pai has sought, to demonstrate by reference to actual figures that in respect of certain periods the present assessees liability to pay the tax as ascertained under the amended proviso would be higher than what it would have been under the unamended proviso. These figures are to be found in three statements filed in the High Court by the respondents and marked as Exs. 4, 13 and 23. The statements are identical and we would only refer to the first of them.13. In column 1 of Ex. 4 is mentioned the year of assessment; in the second column the turnover within the Quilon Municipality is set out; in the third column the turnover relating to profits assessable to Travancore Income-tax Act is set out; in the fourth column the turnover in India is set out; in the fifth column income assessable under the Travancore Income-tax Act had it been in force, is set out; in the sixth column income assessed under the Indian Income-tax Act is set out. From these figures income computed as per proviso to R. 18(2) before its amendment has been set out. If X is the figure in col. 5, Y is the figure in col. 3 and Z the figure in col. 2, the amount of income before the amendment of the proviso would then be : x/y x z. We might call it TI (1) (i.e. taxable income (1)). In the last column of the statement the taxable income computed as per the proviso after its amendment is set out. This is arrived at by dividing the income assessed under the Indian Income-tax Act which we will call A by the turnover in lndia which we will call B and multiplying it by the turnover within the Quilon Municipality i. e. Z. The taxable income thus arrived at i. e., AXZ might be called TI (2). It would appear by the comparison of the figures in col. 7 with those in col. 8 that in respect of the periods ending on June 30, 1949; June 30, 1950; June 30, 1951; June 30, 1954 and June 30, 1955 TI (2) is lower than TI(1). But in respect of periods ending on June 30, 1952; June 30, 1953 and June 30, 1952; June 30, 1953 and June 30, 1956 TI(2) is higher than TI(1). Since the Attorney General does not accept the correctness of the figures in columns 2 to 5 we will regard them as merely hypothetical. But even on the basis of these hypothetical figures. it is apparent that by applying the amended proviso the quantum of liability to pay tax on the same turnover with respect to the same period would, in certain cases, be higher than what it would have been by applying the unamended proviso. The burden of tax is thus liable to be increased in certain circumstances.14. We have already pointed out that the amendment of 1956 was to operate as form April, 1950, that is, from a point of time earlier than the repeal of the Travancore Income-tax Act. But then the proviso is given operation subsequent to the commencement of the Constitution, and the provisions of Art. 276 would stand in the way of the legislature which validated it.15. The learned Attorney General relying upon the decision of this Court in Mst. Jadao Bahujis case, (1962) 1 SCR 633 : (AIR 1961 SC 1486 ) contended that the Kerala legislature was competent to give retrospectivity to a validating law and that since the legislature has validated the amendment to the proviso as from April, 1950, the amendment is valid and took effect from that date. The decision upon which he has relied is distinguishable. That was a case in which the Validating Act had validated the imposition of a tax in excess of Rs. 50 not for a period subsequent to March 31, 1939 but for a period prior to that date. The contention of the assessee was that as the Validating Act was passed subsequent to the coming into force of S. 142-A of the Government of India Act, 1935 it was beyond the competence of the provincial legislature. This contention was rejected by this Court. The case before us, however, is different because the Validating Act purported to validate a profession tax to an extent above Rs. 250/ - subsequent to the commencement of the Constitution. The following observations of this Court in that case in fact militate against the contention of the learned Attorney General:"There can be no doubt that if a law was passed after the amendment and sought to impose taxes on professions etc., for any period after March 31, 1939, it had to conform to the limit prescribed by S. 142-A(2). The prohibition in the second sub-section operated to circumscribe the legislative power by putting a dateline after which a tax in excess of Rs. 50 per annum per person for a period after the date-line could not be collected unless it came within the proviso." (p. 642).16.

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

Explanation:
0[ds]Obviously therefore, what the proviso did was to introduce a new basis for assessment of the taxable income. We say so because the assessment of profit in this way links up their computation with the income assessed for levying income-tax. Under the Travancore Income-tax Act only a certain set of deductions were permissible. Now, if an assessee has in fact expended money for certain purposes but such expenses are not allowable deductions under the Travancore Income-tax Act, it would follow that the profits calculated by reference to the income-tax assessment may work out higher than those actually earned by the assessee. We do not know what was the percentage prescribed by the Government of Travancore under cl. (b) of sub-rule (1) of r. 18. But it it possible that the assessable profits determined with reference to that provision may have been less than those determined under the proviso. In any case it cannot be said with certainty that the profits arrived at would have been identical in the two cases. From the fact that the State enacted the proviso it would have been identical in the two cases. From the fact that the State enacted the proviso it would not be unreasonable to assume that the State thereby expected that the municipality would earn more income than under a computation made under sub-rule (2) of R. 18 read with cl. (b) of sub-rule (1) of R. 18.Another thing which the proviso of 1947 did was to take out of the category of assessees dealt with by sub-r. (2) of R. 18 such companies or persons as were assessable to income-tax. Sub-rule (2) as it stood, treated companies and persons transacting business partly, in the area of the municipality and partly outside such area on a uniform footing irrespective of the question whether a company or a person was assessed to income-tax or not. For the first time the proviso put in a seaprate class those who were assessed to income-tax. The proviso thus affected the basis of assessment of tax and did not merely deal with the procedure for assessing the tax.In the circumstances we cannot accept the contention of the learned Attorney General that the proviso did not affect either the basis or the incidence of the tax but merely provided a machinery for implementing the tax.We have already pointed out that the amendment of 1956 was to operate as form April, 1950, that is, from a point of time earlier than the repeal of the Travancore Income-tax Act. But then the proviso is given operation subsequent to the commencement of the Constitution, and the provisions of Art. 276 would stand in the way of the legislature which validateddecision upon which he has relied is distinguishable. That was a case in which the Validating Act had validated the imposition of a tax in excess of Rs. 50 not for a period subsequent to March 31, 1939 but for a period prior to that date. The contention of the assessee was that as the Validating Act was passed subsequent to the coming into force of S. 142-A ofthe Government of India Act, 1935 it was beyond the competence of the provincial legislature. This contention was rejected by this Court. The case before us, however, is different because the Validating Act purported to validate a profession tax to an extent above Rs. 250/ - subsequent to the commencement of the Constitution. The following observations of this Court in that case in fact militate against the contention of the learned Attorneycan be no doubt that if a law was passed after the amendment and sought to impose taxes on professions etc., for any period after March 31, 1939, it had to conform to the limit prescribed by S. 142-A(2). The prohibition in the second sub-section operated to circumscribe the legislative power by putting a dateline after which a tax in excess of Rs. 50 per annum per person for a period after the date-line could not be collected unless it came within the proviso." (p. 642).