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

2. The petitioners are four partners of a firm named Mohammedaly Sarafaly and Co., Madras, which was carrying on business in hardware, stocks, shares, etc. For the assessment years 19-12-43 to 1945-46 this firm was treated as a registered firm under the Indian Income-tax Act and therefore the partners were assessed on their respective shares of the profits from the business of the firm. All assessments were completed before 1949 and total income for the purpose of assessment for those four years was about Rs. 29,00,000. In 1955 the petitioners under a Voluntary Disclosure Scheme with regard to profits which had escaped assessment made a disclosure of their income and proceedings were taken under S. 34 of the Income-tax Act. In the month of April, 1959, there was a reassessment on all the four partners and the total income for the four assessment years thus came to about Rs. 35 lakhs which included Rs. 29 lakhs already assessed. On that income-tax, super-tax and surcharge were levied. The surcharge, according to the petition was Rs. 3,82,791/-. It is this surcharge which is impugned as being without the authority of law inasmuch as the then Federal Legislature, it is submitted, was not competent to levy the surcharge.

Court's reasoning:
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,