Case ID: 940

Judgment:
Appeal No. 26 of 1956. Appeal by Special Leave from the Judgment and Order dated the 22nd April	 1954	 of the Rajasthan High Court in Writ Petition No. 76 of 1951. N. C. Chatterjee	 J. B. Dadachanji and M. section K. Aiyangar	 for the appellants. K. N. Rajagopal Sastri and D. Gupta	 for the respondents. August 31. The Judgment of the Court was delivered by HIDAYATULLAH J. This is an appeal with the special leave of this Court against the judgment of the High Court of Rajasthan dated April 22	 1954. The appellant is a private limited Company	 which was incorporated in 1945 in the former Kotah State. The income tax authorities sought to tax its profits and income for the assessment year 1950 51 corresponding to the previous year	 1949 50. The appellant claimed exemption under section 14(2)(c) of the Indian Income tax Act	 1922	 as it stood before the amendment in 1953	 contending that the exemption stood good even after the amendment. This claim was rejected by the High Court	 which was moved under article 226 of the Constitution. Hence this appeal. Prior to the integration of Kotah State into the United State of Rajasthan in 1949	 there was no income tax law in force in Kotah State. Till the formation of the State of Rajasthan	 there was no such law in force in any part of Rajasthan	 except Bundi State. The Indian Finance Act of 1950 made the Indian Income tax Act	 1922	 applicable to the whole of India	 except the State of Jammu and Kashmir	 and suitably amended the Indian Income tax Act. Rajasthan then became	 from April 1	 1950	 a taxable territory. For the assessment year 1950 51	 income tax was sought to be imposed in the State of Rajasthan. One 455 Madan Gopal Kabra move the High Court under article 226 of the Constitution to restrain the taxing authorities from claiming tax for the period prior to April 1	 1950	 contending that inasmuch as Rajasthan was not a taxable territory before April 1	 1950	 no tax for a period prior to that date could be demanded. This Court in an appeal by the Department against the decision of the High Court of Rajasthan	 which had accepted the contention	 held that the tax was leviable. It is not necessary to give the details of the decision on that occasion. The judgment of this Court is reported in The Union of India vs Madan Gopal Kabra (1). The present appellant and fourteen others filed petitions under article 226 of the Constitution	 urging fresh grounds by a later amendment. Their contention was that section 14(2)(c) of the Indian Income tax Act	 as it stood on April 1	 1950	 granted an exemption	 and that this exemption was not affected by the amendment of the said provision in 1953 even though the amendment was retrospective from April 1	 1950	 unless the Finance Act	 1950	 which applied the Income tax Act to this area was also amended. This contention was not accepted by the High Court which dismissed the petition under article 226	 holding inter alia that this point was also decided by this Court against Madan Gopal Kabra. In this appeal	 this point alone is argued	 and it is contended that the point is still open for decision. Section 14(2)(c)	 as it stood before the amendment in 1953	 read as follows: " The tax shall not be payable by an assessee (c) in respect of any income	 profits or gains accruing or arising to him within Part B State unless such income	 profits or gains are received or deemed to be received in or are brought into the taxable territories in the previous year by or on behalf of the assessee	 or are assessable under section 12 B or section 42 ". The amendment provided " In section 14 of the principal Act in clause (c) of sub section (2)	 for the words and letter 1 Part B State ' (1) ; 456 the words the State of Jammu and Kashmir ' shall be substituted and shall be deemed to have been substituted with effect from the 1st day of April	 1950 ". The result of this amendment was described by this Court in Kabra 's case (1) to be as follows: " It may be mentioned here that the exemption from tax under a. 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." Mr. N. C. Chatterjee appearing for the appellant contends that the point cannot be considered to have been finally decided	 and that the remark is descriptive only of what the Parliament had purported to do. He claims that the point can and should be reconsider. In support of his contention	 be urges that the effect of the passing of the Indian Finance Act	 1950	 and the application of the Indian Income tax Act to Rajasthan and other Part B States was to incorporate the Indian Income tax Act by reference in the Indian Finance Act with such modifications and amendments as were then made. Any subsequent amendment of the Indian Income tax Act had no effect on the original Act as incorporated by reference in the Indian Finance Act	 unless the latter was suitably amended also. The argument which did not find favour in Kabra 's case (1) was again advanced	 though in another form. It is that the amendment operates from April 1	 1950	 and that the income accrued prior to April 1	 1950	 and it was still exempt	 because the exemption was withdrawn only from April 1	 1950. In our opinion	 both the arguments have no substance	 and the position indicated by this Court in the passage cited earlier	 represents the true state of the law. To begin with	 the exemption is in respect of liability to tax in any year of assessment	 and the exemption in the assessment year 1950 51 was in regard to the income in the previous year. For the same reason	 the withdrawal of the exemption in the assessment year 1950 51 conversely affected the (1) ; 457 income of the previous year	 1949 50 which is the subject matter of tax in this case. The next argument misconceives the nature of the Indian Finance Act	 1950. By that Act	 the Indian Income tax Act was applied	 but the Income tax Act was not incorporated by reference in the Indian Finance Act to become a part of it. The application of the Indian Income tax Act made Rajasthan a taxable territory subject to the Indian Income tax law	 and Parliament was competent to enact a new law for the area	 just as it did for the whole of the rest of India. The fiction in the amendment made the exemption to disappear as if it had never been granted	 and unless there was a saving	 the amendment must operate to obliterate the exemption. in fact	 the whole purpose and intent of the amendment was to reach this result from the assessment year 1950 51 onwards	 and there could be no saving. The argument assumes the premise that the Income tax Act was incorporated in the Indian Finance Act	 1950	 but there is neither precedent nor warrant for the assumption that when one Act applies another Act to some territory	 the latter Act must be taken to be incorporated in the former Act. It may be otherwise	 if there were words to show that the earlier Act is to be deemed to be re enacted by the new Act. The Indian Finance Act	 1950	 was concerned with the application of the Indian Income tax Act to this area	 which it did by amending the definition of 'taxable territory ' in the Indian Income tax Act and by applying that Act to the territory. Thereafter	 the Indian Parliament could amend the Income tax Act retrospectively	 and the amendment would apply also to the new taxable territory. In our opinion	 both the arguments are not valid. The appeal fails	 and will be dismissed with costs. Appeal dismissed.

Summary:
The appellant	 a private limited company	 was incorporated in 1954 in the former Kotah State which had integrated with the United States of Rajasthan in 1949. The United States of Rajasthan became State of Rajasthan	 a Part B State. The Indian Finance Act	 1950	 made the Indian Income tax Act	 1922	 applicable to Part B States with effect from April 1	 1950	 whereupon Rajasthan became a taxable territory. The Income tax (Amendment) Act	 1953	 amended section 14(2)(C) of the Indian Income tax Act	 1922. Thereupon the Income tax authorities sought to tax the profits and income of the appellant for the assessment year 1950 51 who claimed exemption under section 14(2)(C) of the Indian Income tax Act	 1922	 as it stood before the amendment in 1953. The question for decision was whether in view of the decision of this Court in Madan Gopal 's case it was still open to the appellant to contend that the amendment operated from April 1	 1950 and that income accrued prior to April x	 1950	 was still exempt although the exemption was withdrawn only from April 1	 1950. Held	 that the withdrawal of the exemption in the assessment year 1950 51 conversely affected the income of the previous year 1949 50. The application of the Indian Income tax Act made Rajasthan a taxable territory subject to the Indian Income tax law and Parliament was competent to enact a new law for the area	 just as it did for the whole of the rest of India. The fiction in the amendment made in section 14(2)(C) made the exemption in respect of liability to tax the income for the year 1949 50 to disappear as if it had never been granted and obliterated the exemption. The whole purpose and intent of the amendment was to reach this result from the assessment year 1950 51 onwards	 and there could be no saving. The argument assumes the premise that the Income tax Act was incorporated in the Indian Finance Act	 1950	 but there is neither precedent nor warrant for the assumption that when one Act applies another Act to some territory	 the latter Act must be taken to be incorporated in the former Act. It may be otherwise	 if there were words to show that the earlier Act is to be deemed to be re enacted by the new Act. 454 Union of India vs Madan Gopal Kabra	 ; 	 referred.