G. EKAMBARAPPA & ORS.

EXCESS PROFITS TAX OFFICER, BELLARY

May 2, 1967

[J. C. SHAH, S. M. S!KRI AND V. RAMASWAMI, JJ.]

Aclap1<1tio11 of Laws, Order (No. 3) dated December 31, 1956- Excess Profits Tax Act, 1940 made i11app/lcable to all areas forming part of a Part B State immediately before November I, 1956-IVhetlier tunounts to 'repeal' of Act in respect of such area-General Clauses Acl. s. 6 1vhether attracted.

General Clauses Act, S• 6(e)-Liabillty 'acer :ed or incurred'- Bellary district i11cluded i11 Part B State Immediately before NO\ember

I, 1956-Notice under E.tcess Profits Tax Act, s. IS Issued in 1960 ln respect of business carried on in sahl district in 1943-44-Terms of s. 6(e) General Clauses Acl whether satisfied-Liability 10 tax ll'hetlier .arises at eud of chargeable accounting period or lvhen assessntent pro ceedings completed.

The District of Bellary originally belonged to the Part 'A' State of Madras in British India. On October l. 1953 it merged in the Part 'B' State of Mysore. The Excess Profits Act, 1940 applied only to British India. When Bellary District went to the Part 'B' State of Mysore the Act ceased to apply to it. After the States Reorganisation Act, 1956, .\lysore also became a Part 'A' State.

But according to s. 1(2) of the Adaptation of Laws (No. 3) Order dated December 31. 1956. the aforesaid Excess Profits Tax Act was to extend "to the whole of India except the trritories which immediately before November 1, 1956 were comprised in a Part 'B' State." In 196Q the Excess Profits Tax Officer,

Bellary gave a notice to the appellants under s. 15 of the Act in respect of the period October 30, 1943 to October 30, 1944. The appellnnts objecied that the Act did not apply to Bellary district as immec; liately before November 1, 1956 it was in a Part 'B' State. The plea was re- 1ected by the departmental authorities as well as by the High Court

m a wnt petition under Art. 226 of the Constirution. In appeal. by special leave, to this Court it was contended that so far as Bella11 Dis-· trict was concerned it was not a case of repeal but only of non-application of the Act, and thus s. 6 of the Genral Clauses Act was not attracted.

It was further urged that even if s. 6 applied no liability had accrued or been incurred in terms of cl. ( e) of the section as there was no assessment of escaped profits before November l, 1956 when the adaptation was made.

HELD : (i) The result of the Adaptation of Laws Order 1956 so far as the Act was concerned, was that the provisions of the Act were no longer opplicable or in force in Bellary district. To put it differently the Act was repealed so far as the area of Bellltry dIStrict was con-

, crned. Repeal of the Act means revocation or abrogation of the Act and s. 6 of the General Clauses Acr applies even in the case of a partial repeal, or repeal of part of an Act.

[866H; 867A]

(ii) The case was covered by s. 6(e) of the General Clauses Act.

The liability of an assessee to tax arises immediately at. the end f te chargeable accounting period and not merely at the ttme when 1t tS quantified. bv assessment proceedings. It followed trefore that the

EKAMBARAPPA v. P..P.T.O, (Rama.swami, J,) 865

notice issued under s. 1 S of the Act was legally va)id and tho "f; Pllants representing the original partners of the firm continued t!> be ta e to be proceeded against under that section for the profits which had escap ed taxation. [867 E-Fl Wallace Brothers & Co. v. Commissioner of Income-tax, 16 I.T.R. 240 (P.C.), Chatturam Hori/ram Ltd. v. C.l.T., 27 J.T.R. 709. Kalwa Dcvadattwn v. Union of India, 49 J.T, R. !65 and State of Kera/a v, N.

Sami Iyer, A.l.R. 1966 S.C. 1415, rehed on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 185 of 1966.

Appeal by special leave from the judgment and order dated March 20, 1962 of the Mysore High Court in Writ Petition No.

109 of 1960.

A. K. Sen, R. Ganapathy Iyer and R. Gopa/akrishnan, for the appellants.

D. Narsaraju, T. A. Ramachandran and R. N. Sachthey, for the respondent.

The Judgment of the Court was delivered by Ramaswami, J.

This appeal is brought, by special leave, from the judgment of the Mysore High Court dated March 20, 1962 dismissing writ petition No. 109 of 1960. The appellants had prayed therein for the grant of writ for quashing a notice dated January 16, 1960 issued by the respondent under s. 15 of the Excess Profits Tax Act, 1940 (Act XV of 1940), hereinafter called the 'Act', calling upon the appellants to submit a return of the standard profits and the profits actually made during the chargeable accounting period from October 30, 1943 to October

30, 1944 on the ground that the profits had been under-assessed.

The appellants carried on a business constituting themselves into a partnership called 'Guduthur Thimmappa & Brothers in

1934. On the date of commencement of the business the partners were G. Thimmappa, G. Ekambarappa, and G. Padmanabhan, each of the partners representing their respective joint families. The business of the firm was in Bellary town and the

parners of the firm were _residents f Bellary town during the penod the firm was carrymg on busmess. The firm was dissolved on <?ctober 16, 1944.

Thimmappa, one of the partners, died on ApnL13, 1955. For the chargeable accounting period from October 30, 1943 to April 30, 1944, the Excess Profits Tax Officer had taken steps to assess the "escaped'' profits of the firm.

He issued the necessary notices to G. Padmanabhan and G. Ekambarappa as the partners of the dissolved firm. He also issued notice to G. M. Prabhu and G. Lakshmidevamma as the representatives of G. Thimmappa.

The contention of the appellants before the High Court was that as from November 1, 1956 the Act must be

deemed to have been repealed so far as Bellary district is con- A cerned and therefore the respondent was not competent to take any proceedings for determining the escaped income under s. 15 of that Act. The High Court rejected the contention on the ground that, though the Act stood repealed by reason of the inclusion of Bellary district in Mysore State, the liability to pay tax on the escaped profits continued by virtue of s. 6 of the B General Clauses Act.

The question to be considered in this appeal is whether l'ie appellants continued to be liable to be proceeded against under s. 15 of t.he Act on the profits which had escaped taxation.

The present Bellary district was a part of the old Madras State which was a Part "A" State under the Constitution of India till its merger with the Mysore State on October l, 1953 which was a Part "B" State. The Mysore State continued to be a Part "ff'

State till November 1, 1956. The Act extended, when first promulgated, to the territory of fonner British India.

After the Constitution came into force, s. 1 (2) of the Act was adapted so as to extend the operation of the Act "to the who!~ of India except Part 'B' States" by the Adaptation of Laws Order, 1950. After the formation of new States in pursuance of the States Reorganisation Act, 1956 (Act 37 of 1956), sub-s. (2) of s. I of the Act was adapted by the President by Adaptation of Laws (No. 3) Order, 1956 dated December 31, 1956.

Section 1(2) of the Act as adapted read as follows :

"It extends to the whole of India except the territories which immediately before the 1st November, 1956 were comprised in part 'B' state."

The result of the adaptation was that all the provisions of the Act stood repealed so far as the district of Bellary was concernea with effect from December 31, 1956. It was contended on behal1 of the appellants that it is not a case of repeal of the Act and so the provisions of s. 6 of the General Clauses Act could not be invoked to sustain the validity of the notices issl!ed by the respondent under s. 15 of the Act. It was argued that so far as the Act was con cerned, the Adaptation of the Laws Order, 1956 only modified the provisions of s. I (2) of the Act and did not repeal the. Act as such and the effect of the modification was that the provisions of the Act were no longer applicable to the Bellary district _which was comprised in the territory of Part 'B' State of Mysore immediately before November 1, 1956.

In our opinion there is no justification for the argument put forward on behalf of the appel !ants. The result of the Adaptation of Laws Order, 1956 so far as the Act was concerned, was that the provisions of that i\Ct were no longer applicable or in force in Bellary district. To put it differently, the Act was repealed so far as the area of Bellary

district was concerned. Repeal of an Act means revocation or abrogation of the Act and, in our opinion, s. 6 of the General Clauses Act applies even in the case of a partial repeal or repeal of part of an Act. Section 6 of the General Clauses Act slates :

"Effect of repeal.-Where this Act or any Central Act or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not-

( c) affect any right, privilege, obligation or liability C acquired, accrued or incurred under any enactment so repealed; or

" Section 3 ( 19) of the General Clauses Act defines an "enactment'' as including "a Regulation and also as including any provision contained in any Act <lr in any such Regulation as aforesaid".

The argument was also stressed on behalf of the appellants that even if s. 6 ( c) of the General Clauses Act )Vas applicable there was no "liability incurred or accrued" as there was no assessment of escaped profits before November 1, 1956 when the adaptation was made. We do not think there is any substance in this argument. The liability of the appellants to tax arose immediately at the end of the chargeable accounting period and not merely at the time when it is quantified by assessment proceedings. It follows tb.erefore that the notice issued under s. 15 of the Act was legally . valid and the appellants representing the original partners of the firm continued to be liable to be proceeded against under that section for the profits which had escaped taxation. In Wallace Brothers and Co. Ltd. v. Commissioner of Income-tax('), the Judicial Committee expounded in clear terms the scope of a tax liability under the Income-tax Act. It was observed by the Judicial Committee as follows :

" ...... the rate of tax for the year of assessment may be fixed after the close of the previous year and the assessment will necessarily be made after the close of that ye.ar. Bu.t the liability to tax arises by virtu.e of the charging sect10n alone, and it arises not later than the close of the previous year, though quantification of the amount payable is postponed."

The. same view has been expressed by this Court in Chatllram Hori/ram Ltd. v. C.I.T. (2) in which the legal position was revieed

(I) 16 l.T.R. 240, 244, (P.C.)

(2) 27 l.T.R. 709.

with regard to the question of charge to income.-tax.

In that case, the assessee-company carrying on business in Chota Nagpur was assessed to tax for the year 1939·40, but the assessment was set aside by the Income-tax Appellate Tribunal on March 28, 1942, on the ground that the Indian Finance Act, 1939, was not in force during the assessment year 1939-40, in Chota Nagpur which was a partially excluded area. On June 30, 1942, a Regulation was promulgated by which the Indian Finance Act of 1939 was brought into force in Chota Nagpur retrospectively as from March 30, 1939. Thereupon the Incometax Officer made an order holding that the income of the assessee for the year 1939-40 had escaped assessment and issued to the assessee a notice under s. 34 of the Income-tax Act. The validity of the notice was questioned. It was held by this Court that though the Finance Act was not in force in that area in 1939-40, th~ income of the assessee was liable to tax in that year and, therefore, it had escap dently of the passinl( of the Finance Act but until the Finance Act It was pointed out that the income was chargeable to tax indepen dently of the passing of the Finance Act but until the Finance Act was passed no tax could be actually levied. The same principle was reiterated by this Court in Ka/wa Devadattam v. Union of lndla(').

The question in that case was whether the liability of a Hindu undivided family arose before or after partition of the family.

In that case, this Court speaking through Shah, J. stated in clear terms thus :

"Under the Indian Income"tax Act liability to pay income-tax arises on the accrual of the income, and not from the computation made by the taxing authorities in the course of assessment proceedings; it arises at a point of time not later than the close of the year of account."

The same view has been taken in a recent case by this Court in State of .Kera/a v. N. Sami lyer( 2).

In view of the principle expressed in these authorities we are of the opinion that the liability to pay excess profits tax accrued immediately at the end of th.~ chargeable accounting period and that liability was preserv ed under s. 6 ( c) of the General Clauses Act even though the Act stood repealed so far as Bellary district was concerned with effect from November 1, 1956.

Mr. Narsaraju contended in the alternative that on the combined operation of s. 53 of the Andhra Pradesh Act (Act 30 of

1953) ands. 119 of the State Reorganisation Act (Act 37 of

1956) all the provisions of the Excess Profits Tax Act, 1940 remained .in operation in Bellary district i11 spite of the Adaptation of Laws Order, 1956. Section 53 of the Andhra Pradesh Act states as follows :

(I) 49 l.T.R. 165.

(2) A.T.R, 1966 S.C. 141 l.

"Tho provisions of Part II shall not be deemed to have effected any change in tho territories to which any law in force immediately before tho appointed day eit tends or applies, and territorial references in any such law to the State of Madras or of Mysore shall, until otherwise provided by a competent Legislature or other competen! authority, continue to have the same mean ing."

Section 119 of the State Reorganisation Act reads as follows :

"The provisions of Part II shall not be deemed to have effected any change in the territories to which any law in. force immediately before the appointed day ex tends or applies, and territorial references in any such law to an existing State shall, until otherwise provided by a competent Legislature or other competent autho rity, be construed as meaning the territories within that State immCdiately before the appointed day."

Section 120 of this Act states :

"For the purpose of facili'ating the application of any law in relation to any of the States formed or terri torially altered by .the provisions of Part II, the appropriate Government may, before the expiration of one year from the appointed day, by order make such adaptations and modifications of the law, whether by way of repeal or amendment, as may be necessary or expedi ent, and thereupon every such law shall have effect subject to the adaptations and modifications so made until altered, repealed or amended oy a competent Legislature or other competent authority.

Explanation.-In this section, the expression "ap propriate Government" means-

(a) as respects any law relating to a matter enume

rated in the Union List,. the Central Govern ment; and ( b) as respects any other law,- ( i) in its application to a Part A State, the

State Government, and

(ii) in its application to a Part C State, the Central Government."

It was pointed out that the Act was in force in Bellary district when the Comtitution came into force and the effect of s. 53 of the Andhra Pradesh Act was to continue the operation of that Act so far as Bellary district was concerned. The effect of s. 119

870 SUPll.BMB COUll.T 11.BPORTS

[1967) 3 S.C.R.

<>f the State Reorganisation Act was to preserve the territorial <>peration of the Jaw which was jmmediately in force before the date-of the promulgation of that Act until such lw was repealed by the competent legislature or a competent legislative authority.

There is great force in the argument advanced by Mr. Narsaraju on this point. But it is not necessary for us to express any conduded opinion on this aspect of the case because we have already given reasons for holding that the appeal must be dismissed on the ground that the Act stood repealed by reason of the Adaptation of Laws Order, 1956 and the liability to pay tax on .escaped profits continued under s. 6 of the General Clauses Act.

We accordingly affirm the judgment of the Mysore High Court <lated March 20, 1962 and dismiss this appeal with costs.

G.C.

Appeal dismissed.