Case: The Union Of India Vs. Madan Gopal Kabra

2. The respondent resides and carriers on business in the district of Jodhpur in Rajasthan which is one of the Sates specified in Part B of the First Schedule to the Constitution (hereinafter referred to as part B States). In May 1950 the respondent was required to file a return of his income for the previous year, that is the year ending March 31, 1950, for assessment to income-tax, and subsequently was also asked to produce the relevant account books before the Income-tax Officer, Jodhpur on August 11, 1950.Thereupon the respondent presented the petition, out of which this appeal arises, on August 23, 1950 invoking the jurisdiction of the High Court under Art. 226 of the Constitution for the issue of "a writ of mandamus or certiorari or other appropriate writ" directing the appellant not to take any action under the Indian Income-tax Act, 1922. (hereinafter referred to as the Indian Act) as amended by the Indian Finance Act, 1950, for the assessment or levy of income-tax on the income which accrued or arose to the respondent or was received by him prior to April 1, 1950 on the ground that such income was not liable to be charged "under the provisions of any law validly in force in Rajasthan".3. The petition was heard by a Division Bench of the High Court (Nawal Kishor and Kanwarlal Bapna JJ.) who accepted the petition and issued a writ as already stated, overruling sundry preliminary objections to which no reference need be made as they have not been raised by the appellant before us.

Reasoning: It may well be that proviso (b)(iii) was designed to bring the income, profits and gains of the year 1949-50 into charge under S. 4(1) (a) and S. 4(1) (c), in which cases receipt or accrual as the case may be, in the taxable territories is the test of chargeability. It may be mentioned here that the exemption form tax under S. 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.Even assuming it were necessary for the revenue to bring the case within proviso (b)(iii) in order to sustain the charge on the respondents income accruing in Rajsthan during the year 1949-50, we are of opinion that the construction placed by the learned Judges on that clause cannot be supported. They assume that proviso (b) (iii) is a provision authorising assessment of income-tax, and proceed to discuss what the word "assessment" in that context should be taken to mean. Charge of income to tax and its computation are matters governed by other provisions of the Indian Act. All that S. 2(14-A) does is to define what the expression "Taxable territories" means in certain cases and for certain purposes wherever that expression is used in the various provisions of the Indian Act.And as the expression is used in the charging Section 4 in connection with the conditions which are to determine liability to tax, sub-cl. (iii) of cl. (b) of the definition must, when read with S. 4 of the Indian Act, have reference to chargeability of income. The result is that Ss. 3 and 4 of the Indian Act, in the light of the definition in proviso (b) to the amended S. 2(14-A) and S. 2 of the Indian Finance Act, 1950 authorise the imposition of the Indian Income-tax and super-tax on the income derived by the respondent in the year 1949-50 in the territory of Rajasthan.Nor can S. 6 of the General Clauses Act, 1897 serve to keep alive the liability to pay tax on the income of the year 1949-50 assuming it to have accrued under the repealed State law, for a "different intention" clearly appears in Sections 2 and 13 of the Finance Act read together as indicated above. In any case, no question of keeping any such liability alive could arise in the present case as admittedly no State law of income-tax was in operation in the territory of Rajasthan, except the former State of Bundi. On this view the whole basis of the reasoning of the learned Judges below falls to the ground.The argument was put in two ways. In the first place, it was said broadly that as the Constitution could not operate retrospectively as held by this Court in --- Keshvan v. State of Bombay, AIR 1951 SC 128   (B), the power of legislation conferred by the Constitution upon Parliament could not extend so as to charge retrospectively the income accruing prior to the commencement of the Constitution. This is a fallacy.While it is true that the Constitution has no retrospective operation, except where a different intention clearly appears, it is not correct to say that in bringing into existence new legislatures and conferring on them certain powers of legislation, the Constitution operated retrospectively. The legislative powers conferred upon Parliament under Art. 245 and Art. 246 read with list I of the Seventh Schedule could obviously be exercised only after the Constitution came into force and no retrospective operation of the Constitution is involved in the conferment of those powers. But it is different thing to say that Parliament in exercising the powers thus acquired is precluded form making a retroactive law. The question must depend upon the scope of the powers conferred, and that must be determined, with reference to the "terms of the instrument by which affirmatively, the legislative powers were created and by which, affirmatively, they were245 of the Constitution enacts that subject to its provisions Parliament may make laws for the whole or any part of the territory of India and Art. 246 proceeds to distribute legislative powers as between Parliament and the State Legislature in the county. Thus, these articles read with Entry No. 82 of List I of the Seventh Schedule empower Parliament to make laws with respect to taxes on income for the whole of the territory of India, and no limitation or restriction is imposed in regard to retroactive legislation. It is, therefore, competent for Parliament to make a law imposing a tax on the income of any year prior to the commencement of theare unable to accept the argument. Our Constitution, as appears from the preamble derives its authority from the people of India, and learned counsel conceded that it was open to the people to confer on the legislatures established by the Constitution, which they framed through their representatives, power to make laws having operation in relation to periods prior to the commencement of the Constitution. But it was insisted, such a power should be given in clearly expressed terms. There is, however, no question here of the Constitution operating retrospectively in bringing into existence the Union Parliament or the legislature of the State. The only question is what powers have been conferred upon these legislatures by the representatives of the people who framed the Constitution and, in determining that issue, the principles laid down in cases like --- Queen v. Burah (C) apply in full force. The observations in the Australian case, to which reference has been made, seem to us to go too far and cannot be accepted as sound constitutional doctrine.15. Nor can it be said, in strictness, that the Finance Act, 1950 is retroactive legislation. That Act, as already noticed, purports by S. 2 to charge income-tax and super-tax at specified rates "for the year beginning on the 1st day of April 1950". The case is thus one where the statute purports to operate only prospectively, but such operation has, under the scheme of the Indian Income-tax law, to take into account income earned before the statute came into force. Such an enactment cannot, strictly speaking, be said to be retroactive legislation, though its operation may effect acts done in thecompetency of the Rajpramukh as the Ruler of the State to accept the Constitution of India as governing that State also was not challenged before us, and it is manifest that after such declaration and direction, no restriction imposed on the Dominion Legislature by the Instrument of Accession and enforced by S. 101 of the Government of India Act could prevail against the legislative powers conferred on Parliament by the Constitution of India. The difference in the constitutional position which previously existed between the Provinces and the Acceding States has thus disappeared except, of course, in regard to matters in which such distinction has been preserved by the Constitution itself, e. g., by Art. 238 and Art. 371.It follows that the amendment of S. 2, cl. (145-A) of the Indian Act, by the Finance Act, 1950, so as to authorise the levy of tax on income accruing in the territory of Rajasthan in the year 1949-50 is within the competence of Parliament and therefore valid.