M•mpn Abdul Karim

v. "1 Ciutodla11 G•noral

'WIUIChoo /.

SUPREME COURT REPORTS

that this was a loan and not a deposit, for he never pleaded at any time before the authorities concerned that even if it was a deposit the recovery would be barred by time. We are of opinion that there is force in this contention on behalf of the respondents and we are not prepared to allow the appellant to raise the questfon whether the recovery would be barred eve.n if the amount is treated as a deposit.

In this view of the matter, it would not be necessary to consider the exact effect of s. 48 ( 3) and to decide whether it will apply even to cases where the recovery had become barred under the Limitation Act before October 22, 1956.

We therefore do not allow the appellant to raise the point that the recovery would be barred even if the amount was

a deposit.

The appeal therefore fails and is hereby clismWed witll cos ta.

Appeal. dismissed.

STATE OF MADHYA PRADESH

BHOPAL SUGAR INDUSTRIES LTD.

(P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO, J. C.

SHAH, N. RAJAGOPALA AYYANGAll AND s. M. S!KRI JJ.)

.Iqua/ Protection of Lllw......Oeographical clas•ification du• to hiSlorical

ttOIOn.t whethef valid-II upheld-Time-limit for adjustments, .ii pos1il!le-Difierential trlatment-Mere plea not su/ficient-Coriitlfution oi India, A.rt. 14--Bhopal State Agricultural Income-tax A.ct,

!9S3 (Bhopal A.ct 11 of 1953) .

The respondent, a company incorporated in the former State .of.

Bhopal, presented a petition in August 1960 under Art. 226 of Iha Constitution "in the High Court of Madhya Pradesh for a writ restraini111 the Stale of Madhya Pradesh from enforcing the Bhopal State Agri cliltural Income-tax Act, 1953, claiming that the Act contravened Iha respondent's right under Art. 14 of. the Constitution. lly the Stater lleorganisation Act, 1956 the territory of tho State of BhOPal ..,.

incorporated from November I, 1956 into the newly formed State of 1964 Madhya Pradesh. The States Reorganisation Act by s. 119 continued Still , Mad..__ the operation of the laws in force in the territories in which they were 1 ,.';;,., ui ~,.... previously in force until the competent legislature or rtuthority amended,

'Y. altered or modified these laws. Shortly after the reoraanisation. the B/torxll s.,..

Madhya Pradesh Adaptation of Laws Order, 1956 was issued so as to lndiutrln make certain laws applicable uniformly to the entire State and later the Lrg:slatnre by the Madhya Pradesh Extension of Laws Act, 1958 made other alterations in the laws applicable to the State. But llhopal Act 11 of 1953 remained unamended or unaltered: nor was its Operation extended to the other areas or regions in the State with the result

that Agrii:ultural lncome-tru< was levied within the territory of tho former State of Bhopal and not in the rest of the territory of the Stato

of Madhya Pradesh. The High Court held that tho provisions of Bhopal Act .11 of 1953 contravened Art. 14 of the Constitution and observed that though the State had removed diversity in some of tho laws of the component regions, no attempt was made to remove discrimination between the territory of the former Bhopal ltate and the rest of the territories of the State of Madhya Pradesh with respect lo this law.

Held: (i) Where application of unequal laws is reasonably ju.•tifietl for historical reasons, a geographical classification founded on tboso

historical reasons would be upheld. The legislature bas always Ibo power to make special laws to attain particular objects and for that purpose has authority to select or classify persons, objects or trans. llClions upon which the law is intended to operate. Differential treaiment becomes unlawful only when it is arbitrary or not supported by • rational relation with the object of the statute.

Bhaiyalal Shukia v. S!ate of MadhY.a Pradesh, [1962] Supp. 2 S.C.R. 257, The State of Madhya Pradesh v. The Gwalior Sugar Co., [1962] 2 S.C.R. 619, Maharaj Kumar Prithivi Raj v. State of Rajasthan, C.A.

Nos. 327-328, dated 2-11-1960 and Anand Prasad Lakshminiv., Ganeriwal v. State of A1ulhra Pradesh, A.I.R. 1953 S.C. 853. relied on.

State of Raja1than Y. Rao Manohar Singhji, [1954] S.C.ll. 996, Kplained.

(ii) It would be impossible to lay down any definite time-limit within which the State had to make necessary adjustments so as to olfectuate the equality clause of tho Constitution. It cannot be said lllat because a certain number of years have elapsed or that tho Stale llas mallo other laws uniform. tho State has achld improperly in continuing an impost which operates upon., a class of citizens more barsblJ lbln upon other.. ··

(iii) To make oot a case of denial of the equal protection of lawo. 1111der Art. 14, a plea of differentbl trea!M•nl is by itself not ru111ciont.

An applicant plcadins sucb denial must make out tbal not on)1 he.·

1116I bad been treated differently from otbcn but he has been oo treated .State of Madhya from ersons. similarly circumstanced without any reasonable basis, and

Ptade1h i1uzh differential treatment is unjustifiably rnade. v.

Ilhopal ,,,,,,, l "41111ric• CIVIL APPELLATE JtJRISDICTION: Civil Appeal No. 491 of 1963.

Appeal from the judgment and order dated January I 7, I 96 I of the Madhya Pradesh High Court in Misc. Petition No. 226 of 1960.

B. Sen and /. N. Shroff, for the appellant.

S. T. Desai, J. B. Dadachanji, 0. C. Mathur and Ravinder Nnmi•'l, for the respondent.

February I 9, 1964.

The Judgment of the Court was

deliverd by

SHAH, J.-Bhopal Sugar Industries Ltd.-hereinafter called 'the Cornpany'-was incorporated under the Companies Act of the former lndian State of Bhopal. In I 953 the State of Bhopal whkh was then a Part 'C' State under the Comtitution of India enacted "The Bhopal State

Agricultural Income-tax Act, IX of 1953" providing for imposition and levy of tax on agricultural income. The Act was '1pplied to the. territory of the entire State of Bhopal and was brought into force on July 15, 1953.

By the States Reorganisation Act, I 956 (No. 67 of 1956), territory of the Part 'C' State of Bhopal was incorporated with effect from November l, 1956, into the newly formed State cf Madhya Pradesh. Section 119 of the States Reorgani<, ation Act, 1956, enacted that by the constitution of the reorganized State, no change in the Jaws in force which immediatelv before November I, 1956, extended or applied to any constituent regions, was effected, and cerritorial references in the laws to an existing State shall, until otherwise provided by a competent Legislature or other competent authority be construed as meaning the territories within that State immediately before November 1, 1956.

By the Madhya Pradesh Adaptation of Laws (State and Concurrent Subjects) Order, 1956, promulgated by the

Governent of the State, all laws in force in the regions 1~ which were newly incorporated into the reorganised State state of Mad,.,._. of Madhya Pradesh were, with certain adaptations and Pradeih modifications specified in the Order, to remain in force in Bhopal v. s,,,., those areas until altered, repealed or amended, and by that lndrutrln Order the Bhopal Act IX of 19 5 3 continued to remain Shah /. applicable in the territory of the former Bhopal State, in the new State of Madhya Pradesh.

Later the Legislature of the Madhya Pradesh State enacted the Madhya Pradesh

Extension of Laws Act, 1958, extending several Acts-- Central as well as State-to the entire territory of the State, but no alteration was made in the territorial operation of Bhopal Act IX of 1953. It is common ground that in tbs remainipg territory of the State of Madhya Pradesh there was no law providing for levy of tax on agricultural income.

The Company paid and continued to pay tax assessed under the Bhopal State Agricultural Income-tax Act, 1953, till some time in 1960.

On August 4, 1960, the Company presented a petition undi::r Art. 226 of the Constin1tion m the High Court of Madhya Pradesh at Jabalpur for a wrtt declaring that Bhopal Act IX of 1953 was unconstitutional and void as being discriminatory and for appropriats directions, writs or orders restraining the State of Madhya Pradesh from giving effect to the Act. It was claimed by

the Company that Bhopal Act IX of 1953 deprived the residents of the territory to which H applied, of the protection of Art. 14 of the Constitution.

The High Court upheld the plea of the Company and issued a writ restraining the State of Madhya Pradesh from enforcing the provisions ')f

Bhopal Act IX of 1953, observing that the Act was "in clear contravention of the petitioner's right under Art. 14 of the Constitution and must be declared void".

Authority of the Part C State of Bhopal to enact tbs Act, as it originally stood, is not in dispute, nor are tbs provisions of s. 119 of the Stat'18 Reorganisation Act and the Madhya Pradesh Adaptation of Laws (State and Concurrent Subjects) Order, 1956, challenged as incompetent.

The plea that there is infringement of Art. 14 of the Constitution is advanced on the sole ground that in the

reorganiied State of Madhya Pradesh formed under the

134-159 S.C.-54

fg61 States Reorganisation Act, 1956, agricultural income-tax is ...,. of Madhya levied within the territory of the former State of Bhopal

Pradalt and not in the rest of the territories of Madhya Pradesh. llTwpaJ v. Suglll' Prima facie, a differential treatment is accorded by the State

lndrutrl•• of Madhya Pradesh to persons carrying on agricultural Shall 1. operations in the Bhopal region, because the State subjects them to pay tax on agricultural income, which is not imposed upon agricultural income earned in the rest of the State. But that by itself cannot be a ground for declaring the Act ultra vires. The State is undoubtedly enjoined by Art. 14 of the Constitution not to deny to any person equal protection of the laws within the territory, but a proper classification bearing a reasonable and just relation to the object sought to be achieved by the statute does not on that account become impermil>sible.

All persons who are similarly circumstanced as regards a subject matter are entitled to equal protection of the laws, but it is not !Predicated thereby that every law must have universal application irrespective of dissimilarity of objects or transactions to which it applies, or of the nature or attainments of the persons to whom it relates.

The Legislature has always the power to make special laws to attain particular objects and for that purpose has authority to select or classify persons, objects or transactions upon which the law is intended to operate. Differential treatment becomes unlawful only when it is arbitrary or not supported by a rational relation with the object of the statute. This Court has held in several cases, that where application of unequal laws is reasonably justified for historical reasons, a geographical classification founded on those historical reasons would be upheld : Bhaiyalal Shukla v. State of Madhya Pradesh('): The State of Madhya Pradesh v. The Gwalior Sugar Co. Ltd. and others(2 ): Maharaj Kumar Prithvi Raj and another v. The State of Rajasthan and others(•) and Anand Prasad Lakshminiwas Ganeriwal v. State of Andhra Pradesh( 4 ). The decision of this Court in The State of Rajasthan v. Rao Manohar Singhji(") does not lay down

(I) [1962] Suppl. 2 S. C. R. 257.

(2) [1962] 2 S. C. R. 619.

(3) C.A. Nos. 327-328 of 1956 decided on Nov. 2, 1960.

(4) AIR 1963 S. C. R53.

(S) [1954] S. C. R. 996.

any contrary principle. In that case the Court accepted that I91ff historical reasons may justify differential treatment of Stat< otMad'llY!!i separate geographical regions provided it bears a reasonable Prlllluh and just relation to the matter in respect of which it is Bhopal"· S"IJ"i' proposed, but the differentiation in that case was regarded lnd:Lilrll!b as infringing the equal protection of the laws because Shah ;. members of the same class were treated in a manner ex facie discriminatory, and no attempt was made by the State to justify the treatment as founded upon a rational basis having a just relation to the impugned statute.

It is necessary to bear in mind that the various administrative units which existed in British lndia were the result of acquisition of territory by the East India Company from time to time. The merger t>f Indian States since 194 7 brought into the Dominion of India numerous Unions or States, based upon arrangements ad hoc, and the constitutional set up in 1950 did not attelllJPt, on account of diverse reasons mainly political, to make any rational rearrangement of administrative units.

Under the Constitution as originally promulgated there existed three categories of States, beside the centrally administered units of the Andaman and Nicobar islands.

Pa.rt 'A' States were the former Governors' Provinces, with which were merged certain territories of the former Indian States to make geographically homogeneous units : Part 'B' States represented groups formed out of 275 bigger Indian States by mutual arrangement into Unions : Part 'C' States were the former Chief Commissioners' Provinces.

These units were continued under the Constitution merely because they formerly existed.

Later an attempt was made under the States Reorganisation Act to rationalize the pattern of administration by reducing the four classes of units into two-States, and Union territories-and by making a majority of the States homogeneous linguistic units.

But in the States so reorganized were incorporated regions governed by distinct laws, and by the mere process of bringing into existence reorganized administrative units, uniformity of laws could not immediately be secured.

Administrative reorganization evidently could not await adaptation of laws, so as to make them uniform, and

1961 immediate abolition of laws which gave distinctive character "'* ofMadhya to the regions brought into the new units was politically

Pradesh inexpedient even if theoretically possible.

An attempt to Bliopa/"· su11ar secure uniformity of laws before reorganisation of the units

Industri•• would also have considerably retarded the process of Shah J. reorganisation.

With the object of effectuating a swift transition, the States Reorganisation Act made a blanket provision in s. 119 continuing the operation of the laws in force in the territories in which they were previously in force notwithstanding the territorial reorganisation into different administrative units until the qompetent Legislature or authority amended, altered or modified those laws.

The reorganized State of Madhya Pradesh was formed by combining territories of four different regions.

Shortly after reorganisation, the Governor of the State issued the Madhya Pradesh Adaptation of Laws (State and Concurrent Subjects) Order, 1956, so as to make certain Jaws applicable uniformly to the entire State and later the Legislature by the Madhya Pradesh Extension of Laws Act, 1958, made other alterations in the laws aipplicable to the State.

But Bhopal Act IX of 1953 remained unamended and unaltered : nor was its operation extended to other areas or regions in the State. Continuance of the laws of the old region after the reorganisation by s. 119 of the States Reorganisation Act was by itself not discriminatory even though it resulted in differential treatment of persons, objects and transactions in the new State, because it was intended to serve a dual purpose-facilitating the early formation of homogeneous units in the larger interest of the Union, and maintaining even while merging its political identity in the new unit, the distinctive character of each region, till uniformity of laws was secured in those branches in which it was expedient after ful! enquiry to do so. The laws of the regions merged in the new units had therefore to be continued on grounds of necessity and expediency. Section 119 of the States Reorganisation Act was intended to serve this temporary purpose, viz., to enable the new units to consider the fljlecial circumstances of the diverse units, before launching upon a process of adaptation of laws so as to make them reasonably uniform, keeping in view the special needs

of the component regions and administrative efficiency. 1964 Differential treatment arising out of the application of the State of Madiry,.. laws so continued in different regions of the same reorga- Praduh nised State, did not therefore immediately attract the clause Bhopal v. su,.. of the Constitution prohibiting discrimination. But by the Industri•• passage of time, considerations of necessity and expediency Shah J. would be obliterated, and the grounds which justified classification of geographical regions for historical reasons may cease to be valid.

A purely temporary provision which because of compelling forces justified differential treatment when the Reorganisation Act was enacted cannot obviously be permitted to assume permanency, so as to perpetuate that treatment without a rational basis to support it after the initial expediency and necessity have disappeared.

The High Court observed that even though the State had enacted the Madhya Pradesh Extension of Laws Act, 1958, and had removed diversity in some of the laws of the component regions, no attempt was made to remove discrimination between the territory of the former Bhopal State and the rest of the territories of the State of Madhya Pradesh in the matter of levy of agricultural income-tax.

This in the view of the High Court was unlawful because the State had since the enactment of the States Reorganisation Act sufficient time and opportunity to decide whether the continuance of the Bhopal State Agricultural Incometax Act in the Bhopal region would be consistent with Art. 14 of the Constitution. We are unable to agree with the view of the High Court so expressed.

It would be impossible to lay down any definite time-limit within which the State had to make necessary adjustments so as to effectuate the equality clause of the Constitution. That initially there was a valid geographical classification of regions in the same State justifying unequal laws when the State was formed must be accepted. But whether the continuance of unequal laws by itself sustained 1the plea of unlawful discrimination in . view of changed circumstances could only be ascertained after a full and thorough enquiry into the continuance of the grounds on which thi: inequality could rationally be founded, and the change of circumstances, if anv. which obliterated the compulsion of expediency

~ and necessity existing at the time when the Roorganisation Stal• of Madhya Act was enacted.

Pradesh

Bhopal Sugar lndllllriu

SWJ.

Unfortunately there was no clear perception by the parties of what has to be pleaded and proved to establish a plea of denial of equal protection of the laws. The Company merely assumed that the existence of a law relating to taxation which imposed agricultural income-tax in the Bhopal region, there being no similar levy in the rest of the State, was in law discriminatory.

That is clear from the petition of the Company which merely asserted that the Act discriminated between the Company and other ownets . of sugarcane farms in the State of Madhya Pradesh, because it singled out the Company and other agriculturists in the Bhopal region from other agriculturists and sugarcane farm owners in the State of Madhya Pradesh and subjected them to liability without any reasonable basis for classification.

The Company therefore baldly submitted that after the incorporation of the Bhopal region in the reorganised State, the State of Madhya Pradesh ought to have suitably modified the Act so as to make it applicable t9 all residents alike and by allowing the Act to operate without any modification, the State had violated the fundamental right of the Company under .Art. 14 of the Constitution.

The State of Madhya Pradesh did not file any affidavit in reply before the High Court, and chose to defend the petition as if its decision depended on a pure question of law, that if for historical reasons the Act in operation in a region incorporated in the new State was not discriminatory at the date when the reorganisation took place, it can never become discriminatory thereafter. The assumptions made by both the parties appear to be erroneous. The High Court was of the view that after expiry of a reasonable period during which the State has the opportunity of making necessary adaptations so as to make the Act applicable to the entirety of the new State, if the State fails to adapt the law, historical considerations which initially justified the classification must be deemed to have disappeared. That assumption without further enquiry may not be accepted as correct.

It was necessary for the High Court to investigate whether. at the date when the petition was filed, special treatment of the

Bhopal region in the matter of levy of agricultural income- 1~ tax had a rational basis. That necessitated an enquiry into Stat• of Mall.,._ the structure of tax burden imposed directly or indirectly Pradalt Y. on or in respect of agricultural land or income from it in Blwpol s,,,.,

the different regions constituting the State. If for instance, Inllllltrl# on account of disparity in the impost of land revenue and .fW /. related taxes on land and income from land in other regions, the ultimate burden on persons in the Bhopal region who were subjected to agricultural income-tax and agricultural land owners in the rest of the State did not disclose a pattern of wide variations, the mere existence of agricultural income impost in one region, and absence of such impost in another region may not necessarily justify an inference of unlawful discrimination. It was therefore necessary to ascertain the difference in the overall tax liability between persons similarly situated in the State of Madhya Pradesh in the matter of levy of agricultural tax. For that purpose an investigation was necessary whether the incidence of total burden on agriculturists was so desparate that an inference of unlawful discrimination may reasonably be made.

The High Court had to ascertain the impact of diverse land taxes imposed on agricultural land in the four regions of the State, and whether the burden between persons similarly circumstanced was substantially dissimilar, and whether continuance of dissimilar levies was justified. If upon a thorough examination of the pattern of land taxes in different regions of the State, it appeared to the Court that an unreasonably larger burden was sought to be continued upon this region, without any apparently justifiable ground, an inference of discrimination may arise.

In adjudging reasonableness of classification for the purpose of taxation, the Courts recognise greater freedom in the Legislature and if the statute discloses a permissible policy of taxation, the Courts will uphold it. The Courts undoubtedly lean more readily in favour of the presumption of constitutionality of a taxing statute, but that is not to say that they will not strike down a statute unless it appears that the tax was imposed deliberately with the object of differentiating between persons similarly circumstanced.

We may state that the observations to the contrary that in

1961 matters of taxation a statute may not be struck down "unless '- ofMadh a the Court finds that" the tax "has been imposed with a . Pradesh 1 deliberate intention of differentiating between individual •11o,,,, i v. Sugar and individual" in The State of Madhya Pradesh v. The lndrutrlu Gwalior Sugar Co. Ltd. and another(') was not strictly

Sltah J. necessary for deciding that case, and was not intended to lay down any special test applicable to taxing statutes in their relation to Art. 14 of the Constitution.

To arrive at a conclusion adverse to the State it was therefore necessary to decide whether the differentiation arising from the continuation of the levy of the agricultural income-tax was unfair and not supported by a reasonable standard, and the State having the requisite information and opportunity to make the imposts reasonably uniform, had failed or neglected to do so.

No set formula can be devised for solving a problem of this character. It cannot be said that because a certain number of years have elaipsed or

at. the State has made other laws uniform, the State has acted improperly in continuing an impost which operates upon a class of citizens more harshly than upon others.

The petition filed by the Company was singularly deficient in furnishing particulars which would justify the plea of infringement of Art. 14 of the Constitution. It cannot be too strongly emphasized that to make out a case of denial of. the equal protection of the laws under Art. 14 of the Constitution, a plea of differential treatment is by itself not sufficient. An applicant pleading that equal protection of the laws has been denied to him must make out that not only he had been treated differently from others but he has been so treated from persons similarly circumstanced wfihout any reasonable basis, and such differential treatment iS unjustifiably made. A mere plea that the Company and other agriculturists within the region of the former Bhopal State had to pay the agricultural income-tax, whereas the agriculturists elsewhere had not to pay such tax, is not sufficient to make out a case of infringement of the fundamental right under Art. 14 of the Constitution.

The State also did not place evidence before the High Court, which would in the very nature of things be in its

possession, showing a rational relation between the differ- 1964

1ential treatment and the classification and has also not State of Madlqfi,

placed any material before the Court throwing light on the Pradult v. question whether the continuance of the tax was justified : Bhopal s,,,., it merely chose to plead its case as on a demurrer. Both lndunriu the State and the Company have by inadequate appreciation Shah 1. of the true position in law contributed to the manner in which the trial of the petition has proceeded.

We would in the circumstances not be justified in dismissing the peti

tion on a technical view of the burden of proof. , We think that this is a case in which the iparties should be given an opportunity to plead their respective cases adequately and to go to trial after the requisite evidence which has a bearing is brought before the Court.

We accordingly allow the appeal, set aside the order and remand the case for retrial to the High Court.

The High Court, will, if the Company so desires, give oppor tunity to the Company to amend its petition .so as to adequately iplead its case of infringement of the fundamental right to equal protection of the laws supported by necessary particulars.

The High Court will also give opportunity to the State to file its affidavit in reply and to place all such materials as it may rely upon the plea set up by the Com- 1>any. After the pleadings are completed and the evidence is brought on the record, the High Court will proceed to

decide the case according to law.

Costs in this Court will be the costs in the petition before the High Court.

Appeal allowed.

HUKUMCHAND MILLS LID.

1HE STATE OF MADHYA BHARAT AND ANOTHER

(P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO, K. c. DAS

GUPTA, J.C. SHAH AND N. RAJAGOPALA AYYANGAR JJ.)

fudustrial Tax-Assessment under the Tax Rults-A.mendment- Yalidity-AsJtnm•nt under the old law if validated by the Yal1datin1 Act-Validating Act if, hit b1 Art. 14-lndore Industrial T~

February 20'..

s. 48

Limitation Act

October 22, 1956

STATE OF MADHYA PRADESH

BHOPAL SUGAR INDUSTRIES LTD

P. B. GAJENDRAGADKAR, C.J.

K. N. WANCHOO, J.

SHAH

Art. 226

High Court of Madhya Pradesh

Art. 14

Stater lleorganisation Act, 1956

States Reorganisation Act

s. 119

Art. 14

Bhopal

State of Madhya Pradesh

[1962] 2 S.C.R. 619

Art. 14

B. Sen

N. Shroff

S. T. Desai

B. Dadachanji

C. Mathur

Ravinder Nnmi•'l

SHAH

Companies Act

Income-tax Act

July 15, 1953

States Reorganisation Act

November l, 1956

Madhya Pradesh

Section 119

November 1, 1956

Order the Bhopal Act

Bhopal Act IX of 1953

Income-tax Act

August 4, 1960

Art. 226

Bhopal Act IX of 1953

State of Madhya Pradesh

Bhopal Act IX of 1953

Art. 14

Bhopal Act IX of 1953

Art. 14

s. 119

Art. 14

States Reorganisation Act, 1956

Art. 14

[1962] 2 S. C. R. 619

East India Company

Dominion of India

Andaman

Nicobar

Shah

States Reorganisation Act

s. 119

Bhopal Act

s. 119

States Reorganisation Act

Section 119

States Reorganisation Act

State of Madiry

States Reorganisation Act

Art. 14

Art. 14

Art. 14

Art. 14

Art. 14

Art. 14

HUKUMCHAND MILLS LID

STATE OF MADHYA BHARAT

K. c. DAS

GUPTA

J.C. SHAH

N. RAJAGOPALA AYYANGAR

Art. 14


6 S.C.R.

SUPREME COURT REPORTS 857

possession, showing a rational relation between the differ- 1964

1ential treatment and the classification and has also not State of Madlqfi,

placed any material before the Court throwing light on the Pradult v. question whether the continuance of the tax was justified : Bhopal s,,,., it merely chose to plead its case as on a demurrer. Both lndunriu the State and the Company have by inadequate appreciation Shah 1. of the true position in law contributed to the manner in which the trial of the petition has proceeded.

We would in the circumstances not be justified in dismissing the peti

tion on a technical view of the burden of proof. , We think that this is a case in which the iparties should be given an opportunity to plead their respective cases adequately and to go to trial after the requisite evidence which has a bearing is brought before the Court.

We accordingly allow the appeal, set aside the order and remand the case for retrial to the High Court.

The High Court, will, if the Company so desires, give oppor tunity to the Company to amend its petition .so as to adequately iplead its case of infringement of the fundamental right to equal protection of the laws supported by necessary particulars.

The High Court will also give opportunity to the State to file its affidavit in reply and to place all such materials as it may rely upon the plea set up by the Com- 1>any. After the pleadings are completed and the evidence is brought on the record, the High Court will proceed to

decide the case according to law.

Costs in this Court will be the costs in the petition before the High Court.

Appeal allowed.

HUKUMCHAND MILLS LID.

1HE STATE OF MADHYA BHARAT AND ANOTHER

(P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO, K. c. DAS

GUPTA, J.C. SHAH AND N. RAJAGOPALA AYYANGAR JJ.)

fudustrial Tax-Assessment under the Tax Rults-A.mendment- Yalidity-AsJtnm•nt under the old law if validated by the Yal1datin1 Act-Validating Act if, hit b1 Art. 14-lndore Industrial T~

February 20'..

SUPREMJ; COURT REPORTS

Rules. 1927: rr. 17. 18-Finilnce Act No. 2S of 19SO-Madhy•

Bharat Taxs on Income (Validation) Act No. 38 of 1954- Constitution of India. Art. 14 •

.8111# or Madhya The appellant, a Cotton Mill in Indore in Holkar State was taxed Bharat in respect of profits, gains and income under the Indore Industrial Tax Ru!OI, 1927 by the then Ruler of Indore. The Holkar State merged into the State of Madhya Bharat which acceded to India. Tho Rajpramukh of the new State promulgated an Ordinance No. I of 1948 to provide for peace and good Government of the State. This Ordinance

was superseded by Act I of 1948. Thereafter on December 28, 1949, me Government issued a Notification under r. 18 of the Tax Rules purporting to make rules under r. 17 thereof. These rules made certain amendments in the Tax Rules. The State of Madhya Bharat became ono of the Part B States on January 26, 19SO. From April I, 19SO, Finance Act No. 25 of 1950 came into force and applied to Madhya Bharat also. According to its provision, the Tax Rules came to be repealed from after the accounting year ending on March 31, 1949 and assessments could only be made under the Tax Rules upto the end of the accounting period ending on or before March 31, 1949.

It further provided that even the assessments for the years previous to the accounting year ending on March 31, 1949 could only be made by the corresponding authorities under the Income-tax: Act, and that appeals would lie to the corresponding authorities under the Income-tax Act; no levy and assessment could be made by the authorities under the repealed law and no appeal would lie to the authorities or Court under that law.

This provision as to the authorities competent to make assessments was lost sight of with the result that assessments were made for the years in dispute which were all before the accounting year ending on March 31, 1949 by the authorities under the Tax Rules, as they were before their repeal. When this mistake was discovered, Parliament passed the Madhya Bharat Taxes on Income (Validation) Act, No. 38 of 1954. The appellant then challenged tho validity of the assessments under the Tax Rules, on the grounds: (I) that the amendments of the Tax Rules on December 28, 1949 were invalid as such amendments could not be made under r. 17 of the Tax Rules, as was purported to be done; (2) even if the amendments were goo'd, they could not have retroactWe effect and could not ta.kc away the vested right of appeal; ()) as after the Finance Act, 1950, assessments were made by the old officers appoinred under the Tax Rules and not by the corresponding officers under the Income-tax Act, the assessments were invalid and the Validating Act could not validate them because, (i) the Validating Act itself was discriminatory and was hit by Art. 14, and (ii) because in any case it did, not apply to the present assessments.

The High Court repelled all these contentions and dismissed the writ petition. On appeal by certificate this Court,

Held: (i) The amendments which were made in the Tax Rules on December 28, 1948, could be justified on the basis of Act I of 1948.

All that s. S of Act I of 1948 requires is the publication of tho

regulation made thereunder and their being made by Government, and 1964 that has been complied with in this case. There is no other formality required for making regulations and therefore, even though there was Hu~ltand a mistake in the opening part of the Notification of December 28, 1949, v. the amendments made in the Tax Rules can be upheld under s. S of Stat• of Madlrya Act I of 1948 as regulations.

Bharat

(ii) Even a vested right of appeal can be taken away by express legislation or by legislation which, though it may not expressly repeal the vested right of appea~ has the effect of such repeal by necessary implication. Though the right of second appeal on facts is taken away by the new rule 13 inserted in the Tax Rules, such right is taken away by legislation by neceS5ary intendment Therefore, the right of second appeal after the amendment mnst be confined in all cases by necessary intendment to questions of law only.

(iii) The Validating Act is not hit by Art. 14. The present cases are with reference to years 1940-48, that is before the accounting year ending on March 31. 1949. The assessments in these cases were carried on by the ~Id officers under the old law and the Validating Act specifically validates such assessments.

Jn these circumstances it cannot be said tb'at these assess'ments 'have not been validated by the Validating Act.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 316 of 1962.

Appeal from the judgment and order dated January 2, 1959 of the Madhya Pradesh High Court (Indore Bench) at Indore in Civil Misc. Case No. 20 of 1955.

M. C. Setalvad, G. S. Pathak, B. Dutta,!. B. Dadachanji,

0. C. Mathur and Ravinder Narain, for the appellant.

B. Sen and I. N. Shroff, for the respondents.

February 20, 1964.

The Judgment of the Court was delivered by

WANCHOO, J.-This is an appeal by special leave Wanchoo I. against the judgment of the Madhya Pradesh High Court. It raises the question of the validity of certain provisions of the Indore Industrial Tax Rules, 1947, (hereinafter referred to as the Tax Rules) and assessments made thereunder for the years 1940 to 1948. The appellant is a cotton mill and in 1927 a tax was imposed on cotton mills in Indore in Holkar State by the then Ruler in respect of profits, gains and in come of such mills. This was done under the Tax Rules promulgated by the Ruler of Indore. The procedure under

IrM the Tax Rules provided for a board of assessing c:tlicers.

Hukamchand The orders of the board were open to appeal to the Member Mill.r in-charge of Commerce and Industry Department. There

Stat• 0 , V-Madhya after a second appeal was provided to the Government. Rule Bharat J 7 of the Tax Rules further provided that the power of mak Wanchoo J. ing; rules was vested in the Government and such power shall.

xcept on the first occasion of exercise thereof, be subject to the! condition of previous publication. Rule Ill provided that Rules made under r. 17 shall be published in the State Gazette and thereafter shall have the force of law.

Rule 19 prqvided that the Member in-charge of Commerce and Indus tr] Department shall have power to make subsidiary rules not inconsistent with the Tax Rules. On May 28, 1948, the

Ifolkar State merged to form the State of Madhya Bharat.

On July 19. 1948, the State of Madhya Bharat acceded to India. Ordinance No. 1 of 1948 was promulgated by the Rajpramukh of the new State of Madhya Bharat to provide for the peace and good government of the State. This Ordi

nance was superseded by Act 1 of 1948 which came into force on December 13, 1948. Section 4 of the Act provided for the continuance of the existing laws of any covenanting State's or of any State which merged in the State of Madhya Bharat until repealed or amended under the provisions of the Act.

Section 5 of the Act provided that the Government may by notification published in the Government Gazette make regulations for the peace and good government of all the territories which had already been included in the new State or which may be included in it under the provisions of s. 3 of the Act.

Such regulations were to have the force of law unless they were repugnant to any Act or law or Ordi nance made by the Rajpramukh, in which case to the e"<tent of their repugnancy they would be void.

Further it was provided that such regulations may repeal or amend any law already in force in any State before its administration was taken over or before it was, as the case may be, merged in the new State. Finally the section provided that the right of the Rajpramukh to make Ordinances for the peace and good government of the new State or of the States which may become merged in the said State would remain u11affec-ted.

In view of the mcr(!Cr of the Holkar State into the State of Madhya Bharat, some of the provisions of the Tax Rules

had to be changed to bring them into line with the new set- 1961 up. Consequently, on December 28, 1949, the Government Hukamchand of Madhya Bharat issued a notification under r. 1 of the Mills Tax Rules purporting to make rules under r. 17 thereof. Stat• 0, V-Matlhy11

These rules made certain amendments in the Tax Rules. It Bharat is not necessary to refer to all the amendments as we are conwanchoo 1. cemed here only mth three amendments. The first amendment was that instead of the board making the assessment. the assessment was to be made by an assessing officer.

The second amendment was that the appeal from the assessing officer was to be heard by an officer appointed from time to time by the Minister in-charge of the Finance Department in place of the Member in-charge of Commerce and Industry Department. The third amendment was with respect to second appeals.

The amendment provided that instead of the Government hearing second appeals which under the old provision lay both on facts and law, second appeals there. after were to be heard on a point of law by the High Court.

Then came the Constitution of India on January 26, 1950 and the State of Madhya Bharat became one of Part B States.

In the Finance Act No 25 of 1950, which <'ame into force from April I, 1950 and applied to Madhya Bharat also, a provision was made that any, law relating to income-tax or super-tax or tax on profits of business in any part B State shall cease to have effect except for the purpose of levy, assessment and collection of income-tax and super.tax in respect of any period not included in the previous year for the purpose of assessment under the Indian Income Tax Act, No. XI of 1922 for the year ending on March 31, 1951 or for any sub- , sequent year or, as the case may be, the levy, assessment and collection of the tax on profits of business for any chargeable accounting period ending on or before March 31, 1949. The effect of this was that the Tax Rules came to be repealed from after the accounting year ending on March 31, 1949. and assessment could only be made under the Tax Rules upto the end of the accounting period ending on or before March 31, 1949. A further provision was also made in the Finance Act, 1950, that any reference in any such law to an officer, authority, tribunal or court shall be construed as a reference to the corresponding officer, authority, tribunal or court appointed or constituted under the Income Tax Act.

The result of this provision was that even the assessments

1961 for the years previous to the accounting year ending on B1lkamclumd March 31, 1949 could only be made by the corresponding Milb authorities under the Income Tax Act, and the appeals would Stat• 0, V-Madhya lie to the corresponding authorities under the Income Tax

Bharat Act; no levy and assessment could be made by the authorities Wanchoo 1. under the repealed law and no appeal would lie to the authorities or court under that law. It seems however that this provision of the Finance Act as to the authorities competent to make assessments was lost sight of with the result that assessments were made for the years in dispute in the present appeal which are all before the accounting year ending on March 31, 1949, by the authorities under the Tax Rules, as they were before their repeal. Consequently when this mistake was discovered, Parliament passed the Madhya Bharat Taxes on Income (Validation) Act, No. 38 of 1954 (hereinafter referred to as the Validating Act), s. 3 of which provided that " notwithstanding anything contained in the first proviso to sub-section (1) of section 13 of the Finance Act, all proceedings taken, assessments made and other acts and things done (including orders. made) by or before any officer, authority, tribunal or court acting or purporting to act under the relevant Madhya Bharat law in connection with the levy, assessment and collection of any tax due, under any such law in respect of the relevant period shall be deemed always to have been valid and shall not be called in question on the ground only that such proceedings were not taken, assessments were not made or acts or things were not done by or before the corresponding officer, authority, tribunal or court referred to in the said proviso." Section 4 of the Validating Act further provided that "if immediately before the commencement of this Act, any proceedings of the nature referred to in section 3 are pending before any officer, authority, tribunal or court acting or purporting to act under the relevant Madhya Bharat law, such proceedings may, notwithstanding anything contained in the first proviso to sub-section

(1) of section 13 of the Finance Act, be continued and completed in accordance with the provisions of the relevant Madhya Bharat law, and the provisions of the said proviso shall not apply, and shall be deemed never to have applied, in relation to any such proceedings." What had happened in the present case and in some other cases relating to laws which corresponded to the Indian Income-tax

Act was that the authorities under the Tax Rules made assess- 1961 ments in spite of the provisions in the Finance Act by which Huh~ such assessments should thereafter have been made by the Milla corresponding authorities under the Indian Income-Tax Act, State otv • .,...,_ and that is why the Validating Act had to be passed.

Bhatol

The appellant challenged the validity of the assessments made against it under the Tax Rules by a writ petition filed in the Madhya Bharat High Court in 1955, on the following l!rOunds:-

(1) The amendments of the Tax Rules on December 28, 1949 were invalid as such amendments could not be made under r. 17 of the Tax Rules, as was purported to be done.

(2) Even if the amendments made on December 28, 1949 were good, they could not have retroactive effect -and could not take away the vested right of appeal.

13) As after the Finance Act, 1950, assessments were made by the old officers appointed under the Tax Rules and not by the corresponding officers under the Indian Income Tax Act, the assessments were invalid and the Validating Act C<'uld

not validate them (firstly) because the Validating Act itself was discriminatory and was hit by Art. 14 and (secondly) because in any case it did not apply to the present assessments. '

The High Court repelled all the contentions raised on behalf of the appellant and dismissed the writ petition. Thereupon the appellant applied to the High Court for a certificate of fitness, which was granted; and that is how the appeal has come up before us. We propose to deal with the points raised in the order in which they have been set out above.

Re. (1):.

The first question is about the validity of the amendments made in the Tax Rules on December 28, 1949. It is true that the notification by which amendments were made purports to have been published under r. 18 of the Tax Rules read with r, 17. The argument on behalf of the appellant

Wancllao J.

1961 is that r. 17 of the Tax Rules must be treated on a par with Bukamchand provisions in a statute which provide for framing of rules, Milli and these rules are subordinate legislation made fC'f carrying ·• Sor Madhya out the purposes Of the Statute, and the power to frame such

Bharat rules does not include the power to modify the parent law waclloo 1. under which the rules have to be framed. We do not think it necessary for present purposes to consider thIS argument, for we are of opinion that the amendments which were made in the Tax Rules on December 28, 1949 can be justified on the basis of Act I of 1948, which was passed on Decembr

13, 1948 by the Rajpramukh.

That Act, as already indicated, provided by s. 5 that the Government, by notification published in the Government gazette. may make rrgulations for the peace and good government of all "the: territories which had been included in the State of Madhya Bharat or which may be included in it under the provisions of s. 3 of the Act. It also provided for the repeal or amendment by regulation of any law already in force in any State before its administration was taken over or before it was. ar the case may be. merged in the United States. The Government had therefore the power to amend the Tax Rules under s. 5 (I) read with s. 5 (3) of Act I of 1948. The notification of December 28, 1949 by which the amendment5 were made was published in the gazette of the Madhya Bharat State and the amendments were made by the Government. It is true that in the opening part of the notification it is said that the amendments were made under r. 17 of the Tax Rules; bvt that in our opinion would not conclude the matter, for if the Government had the power to make amendments under Act I of 1948, the amendment5 in the Rules could be justified under that power in spite of the wrong words used in the opening part of the notification of December 28, 1949. It is well settled that merely a wrong reference to the power under which certain actions are taken by Government would not per se vitiate the actions done if they can be justified under some other power under which the Government could lawfully do these acts.

It is quite clear that the Government had the power under 5. 5 (I\ and (3) of Act 1 of 1948 to amend the Tax Rules, for that was a law in force in one of the merged States. The only mistake that the Government made was that in the opening p?.rt of the notification s. 5 of the Act was not referred to and the notification did not specify that the Government was making a 1961 regulation under Act 1 of 1948. But that in our opinion Hukamc/rand would make no difference to the validity of the amendments, Milla if the amendments could be validly made under s. 5 of Act Stat• or Madh,. l of 1948. It is not disputed that the amendments could be Bharat validly made under s. 5 of Act I of 1948.

We are therefore wanchoo 1. of opinion that the mere mistake in the opening part of the notification in reciting the wrong source of power does not

affect the validity of the amendments made.

It is urged that the Government knew that it could only make regulations

under s. 5 and it had made regulations under s. 5 of Act I of 1948 in certain cases. Even if that be so, !here can in our opinion be no doubt about the validity ot the amendments made if the Government had power to make them. even though there was a mistake in the opening part of the notification publishing the amendments.

All that ~. 5 of Act 1 of 1948 requires is the publication of th.: regulation made thereunder and its being made by Government; and that has been complied with in this case.

Th,, re is no other formality required for making a regulation and we are there> . fore of opinion that even though there was ; i mitake in the opening part of the notification of December 28. I \149, the amendments made in the Tax Rules can be upheld under s. 5 of Act 1 of 1948 as a regulation.

We therefore reject the contention under this head.

Re; (2):

Then it is urged that even if the amendments to the Tax Rules are good, they could not affect vested rtghts l'f appeaJ provided under the old law before the amendments and therefore insofar as the amendments affect this vested right, they are of no effect. Now it is well settled that even a vested right of appeal can be taken away by express legislation or by legislation which, though it may not expressly repeal tho vested right of appeal, has the effect of such repeal by neceS- 1ary implication.

We have already pointed out that in view of the coming into existence of the new State of Madhya Bharat, amendments to the Tax Rules had become necessary In order to bring them into line with the structure of the new State. The three main amendments made in the Tax Rules have already been set out by us.

Learned counsel for the

134-159 S.C.-115

1964 appellant does not attack two of them, namely, those relata,,.,;;;',_,,, ing to the assessment officer and the first appeal provided

NW. by the amendments.

The attack is on the amendment of ._ J Mtul"7o r. 13 of the Tax Rules providing for a second appeal. Under

Blulrol the old Rules, a second appeal lay to the Government both lJl'llllCJw, 1• on fact and Jaw; under the new law, it lay to the High Court only on a question of law.

The quarrel is not with the .'.orum of the second appeal; what is urged is that the ne'I\ rule does not allow a second appeal on a question of fact while the old rule did.

That is undoubtedly so. But considering the set up in which the amendments had to be made, it seems to us that even if the new rule cannot be read as an express provision taking away the right of second appeal on facts, it must in the circumstances be held that it does take away that right by necessary intendment. The new rule provided for a second appeal like the old rule but confined it to a question of law.

The necessary implication of the new rule therefore was that though a second appeal will continue to lie as before its scope was cut down only to questions of law. We are therefore of opinion that though the right of second appeal on facts is , taken away by the new rule 13 inserted in the Tax Rules, such right is taken away by legislation by necessary intendment. In the circumstances we are of opinion that the right of second appeal after the amendment must be confined in all cases by necessary intendment to questior:ts of law only.

The contention under this head also fails.

Re. (3):

Coming now to the last point with respect to the VElidating Act, we have not been able to understand how the Validating Act can be said to be discriminatory in nature.

A Validating Act is passed only when certain things have

been done which requite validation. This is exactly what the present Validating Act has done and we fail to see on what grounds it can be said to be discriminatory. Even when the Finance Act of 1950 was passed it would have been open to Parliament to leave the old assessments to be carried on under the old procedure and by ollicers appointed under the old law and such action could not be called discriminatory, for the simple reason that the old assessments

llllnd on a different footing from new assessments after the l9tll new law comes into force.

It is true that Parliament provid-

B•"'""'•' ed otherwise in this case and the Finance Act of 1950 said Milb that the old assessments would be carried on by the cnrress1au ofv. Modlryl. ponding officers under the Indian Income Tax Act. l; Jy mis- Bltarrd take however that provision was overlooked and the old W011Choo 1. assessments were made by the old officers under the ofd law.

All that Parliament did by the Validating Act was to allow the old assessments to be made under the procedure provided under the old law and we can see no discrimination in the Validating Act on account of this fact.

We are therefore of opinion that the Validating Act is not hit by Art. 14.

Further we have not been able to understand how the validation is of no effect so far as the present cases are concerned.

The present cases are with reference to years I 940-48, that is before the accounting year ending on March 31, 1949. The assessments in these cases were carried on by the old officers under the old law and the Validating Act specifically validates such assessments. In these circumstances we havo not been able to understand how it can be sa td that these assessments have not been validated by the Validating Act.

The contention under this head must therefore also fail.

The appeal fails and is hereby dismissed with costs.

Appeal dismissM.

R. ABDUL QUADER AND CO.

SALES TAX OFFICER, HYDERABAD

IP. B. GAJENDRAGADKAR, C.1., K. N. WANCHOO, K. C. DAS

GUPTA, J. C. SHAH AND N. RAJAGOPALA AYYANGAll, JJ.)

klt1 Taz-Taz Collected otherwise than In accordance wltls tlae A.cl-

Provi1ion enabling the Government to recover 1uch tax collt!ct6d- Not within tM competence of State Legisl01urt'--Connitlllion II/ India, Schedule VII, Entry 26 and 54 of List 11-Hyd•robad 0.IWllll

Salei Taz Act, 1950 (XII' of 1950), 1. 11.

F•bTllOrJ Ile

State of Madlqfi

Bhopal

HUKUMCHAND MILLS LID

STATE OF MADHYA BHARAT

P. B. GAJENDRAGADKAR

K. N. WANCHOO

K. c. DAS

GUPTA

J.C. SHAH

N. RAJAGOPALA AYYANGAR

Art. 14

Rules

Constitution of India

Art. 14

December 28, 1949

State of Madhya Bharat

January 26, 19SO

Madhya Bharat

March 31, 1949

Income-tax Act

Parliament

Finance Act, 1950

Income-tax Act

Art. 14

Madlrya Act I of 1948

Art. 14

March 31. 1949

CIVIL APPELLATE JURISDICTION

M. C. Setalvad

G. S. Pathak

B. Dutta

B. Dadachanji

C. Mathur

Ravinder Narain

B. Sen

I. N. Shroff

WANCHOO

Indore in Holkar State by the then Rule

Rule Ill provided that Rules

May 28, 1948

Ifolkar State

Madhya Bharat

July 19. 1948

India

December 13, 1948

Section 4

Section 5

s. 3

Rajpramukh

Government Hukamchand of Madhya Bharat

Constitution of India

January 26, 1950

March 31, 1951

Finance Act, 1950

Bharat Act

s. 3

section 13

Section 4

section 3

section 13

Income-Tax Act

As after the Finance Act, 1950

Art. 14

Wancllao

Decembr

13, 1948

s. 5

s. 3

United States

s. 5

s. 5

Madhya Bharat State

s. 5

s. 5

s. 5

s. 5

s. 5

s. 5

Even when the Finance Act

Art. 14

R. ABDUL QUADER

IP. B. GAJENDRAGADKAR

K. C. DAS

GUPTA

J. C. SHAH

N. RAJAGOPALA AYYANGAll

Schedule VII

Salei Taz Act, 1950


6 S.C.R.

SUPREME COURT REPORTS

llllnd on a different footing from new assessments after the l9tll new law comes into force.

It is true that Parliament provid-

B•"'""'•' ed otherwise in this case and the Finance Act of 1950 said Milb that the old assessments would be carried on by the cnrress1au ofv. Modlryl. ponding officers under the Indian Income Tax Act. l; Jy mis- Bltarrd take however that provision was overlooked and the old W011Choo 1. assessments were made by the old officers under the ofd law.

All that Parliament did by the Validating Act was to allow the old assessments to be made under the procedure provided under the old law and we can see no discrimination in the Validating Act on account of this fact.

We are therefore of opinion that the Validating Act is not hit by Art. 14.

Further we have not been able to understand how the validation is of no effect so far as the present cases are concerned.

The present cases are with reference to years I 940-48, that is before the accounting year ending on March 31, 1949. The assessments in these cases were carried on by the old officers under the old law and the Validating Act specifically validates such assessments. In these circumstances we havo not been able to understand how it can be sa td that these assessments have not been validated by the Validating Act.

The contention under this head must therefore also fail.

The appeal fails and is hereby dismissed with costs.

Appeal dismissM.

R. ABDUL QUADER AND CO.

SALES TAX OFFICER, HYDERABAD

IP. B. GAJENDRAGADKAR, C.1., K. N. WANCHOO, K. C. DAS

GUPTA, J. C. SHAH AND N. RAJAGOPALA AYYANGAll, JJ.)

klt1 Taz-Taz Collected otherwise than In accordance wltls tlae A.cl-

Provi1ion enabling the Government to recover 1uch tax collt!ct6d- Not within tM competence of State Legisl01urt'--Connitlllion II/ India, Schedule VII, Entry 26 and 54 of List 11-Hyd•robad 0.IWllll

Salei Taz Act, 1950 (XII' of 1950), 1. 11.

F•bTllOrJ Ile

1961 The appellant collected sales tax from the purchasers of betel leaves R. Abdul Quader in connection with the sales made by iL But it did not pay the amount .

v. collected to the Government. The Government directed the appellant Saki Taz Officer to pay the amount to the Government and it thereupon filed a writ petition in the High Court questioni112 the validity of s. 11(2) of tho Hyderabad General Sales Tax Act. 1950.

Tho main contention ot the appellant before the High Court waa that s. 11 (2) of the Act which authorises the Government to recover a tax collected without the authority of law was beyond the competence of the Stale Legislature because a tax collected without the authority of law would not be a tax levied under the )aw and it would therefore Dot be open to the State to collect under the authority of a Jaw enacted under the Entry 54 of List II of the VII Schedule to the Constitution

any such amount as it was not a tax on sale or purchase of good•.

The High Court held that s. 11 (2) was good as an ancillary provision with regard to the collectiqp of sales or purchase tax and therefore incidental to tho power under Entry 54, List II. The High Court also beld that even if s. 11(2) cannot be justified under that entry it could bo justified under Entry 26, List II and in the result the writ petition was dismissed. The present appeal is bY way of special leave granted by this Court.

Held: (i) It cannot bo said that the State Legislature was directly legislating for the imposition of sales or purchase tax under Entry 54, List II when it made the provisions of s. 11 (2) for on tho face of tho provisions the amount, though collected bY way of tax was Dot

eiigible as tax under tho law.

(ii) II Is trno that the heads of legislation in tho varions li•b In tho Seventh Schedule should be interpreted widely so as to tato in all maltero which are ot a character incidental to tho topic mentioned therein. Even so there is a limit to ouch incidents! or ancillary powen.

These have to be exercned in aid of the i'nain topic of legi•lation, which in the present case n a tax on sale or purchase ot goods. 'Ilic ambit of ancillary or incidental power> does not go to the eitent of permitting the legislature to provide that though the amount collected, may be wrongly, by way of tax is Dot exigib!e under the Jaw as made UDder the relevant taxing entry, it shall still be paid over to the Goven>o moot as if it were a tax. Therefore the provision contained in 1. 11(2) ....,,, ot be made under Entry 54, List II and cannot be justified evea

as incidental or ancillary provisions permitted under that l!nby.

(iii) Section 11 (2) cannot be justified as providing for a penaltJ for tho breach of any provision of the Act.

(Iv) Entry 26, I.isl II deals with trade and commerce and II" aothing to do with taxing or te<lc>Vering amounb realised wrongly 11 tax. There is no element of regulalion of trade and commerce in a prm•nion lite s. 11(2) and therefore that oectlo11 cannot be IUl1illl4 ander Entry 26, List n.

1961 (Y) Tho provision in •· 20(c) is also innlid as ii ii merely consequential to 1. 11(2).

R. .A.bdu/ Qllllllrr The Orient Papers Mills Ltd. v. State of Orissa, (1962] 1 S.C.R. S49, S 1

T;;, 0 ,,,_ .,_,_ . b d ... uw.uugws e .

State of Bombay v. United Motor1 (India) Ltd., [1953] S.C.R. 1069, referred to.

Indian Aluminium Co. v. State of Madra1, (1962) XIII Sales Tu Cases 967, held to be wrongly decided.

CIVIL APPELLATE 'JURISDICTION: Civil Aippeal No. 760 of 1962.

Appeal by special leave from the judgment and order dated July 16, 1959 of the Andhra Pradesh High Court in Writ Petition No. 1123 of 1956.

K. R. Chaudhuri, for the appellant.

A. Ranganadham Chetty and B. R. G. ~- Achar, for the respondent.

February 21, 1964. The Judgment of the Court was delivered by

WANCHoo J.-This'is an appeal by special leave against Wane/loo 1. the order of the Andhra Pradesh High Court. The appellant filed a writ petition in the High Court questioning the validity of s. 11 (2) of the Hyderabad General Sales Tax Act, No. XIV of 1950, (hereinafter referred to a~ tbe Act).

The material facts on which the petition was bsed were these.

The appellant acted as agent in the tlwn Stdte of Hyderabad to both resident and non-resident principals in regard to sale of betel leaves.

Under the Act betel lea, es were taxable at the purchase point from May I, 1953, by virtue of a notification in that behalf. We are here concerned with the a5sessment period from May I, 1953 to March 31, 1954, covered by the assessment year 1953-54.

The appellant collected sales tax from the purchasers in connection with the sales made by it on the basis that the incident of the tax lay on the sellers and assured the purchasers that after paying the tax to the appellant, there would be no further liability on them. After realising the tax. however, the appellant did not pay the amount realised to the Government but kept it in the suspense account of its principals, namely,

SUPREME COURT RE!>ORTS [rQ64~

.1'64 the purchasers.

When the accounts were scrutinii.ed by the .. Abd;; Quad., Sales Tax Department, this was discovered and thereupon the

•· appellant was called upon to pay the amounts realised to the ..,_ T!:..._Offi"r Government. The appellant however objected to the pay-

IPaclloo I. ment on the ground that it was the seller and the relevant notification for the relevant period imposed tax at the purchase point, i.e. on the purchaser.

This objection was over-ruled and the appellant was directed to pay the amount to Government.

The main contention raised on behalf of the appellant in the High Court was that s. II (2) of the Act, which authorised the Government to recover from any person, who had collected or collects, after May I, 1950, any amount by way of tax otherwise than in accordance with !he provisions of the Act, as arrears of land revenue, was beyond the legislative Ci>mpetance of the State legislature. The argument was that the Act was passed under Entry 54 of List IJ of the Seventh Schedule to the Constitution, which eflables the State legislature to enact a law taxing transactions of sale or purchase of goods.

The entry therefore vests power in the State legislature to make a law for taxing sales and purchases of goods and for making all necessary incidental provisions in that behalf for the levy and collection of sales or purchase tax. But it was urged that that entry did not empower the State legislature to enact a Jaw by which a dealer who may have collected a tax without authority is required to hand over the amount to Government, as any collection without the authority of law would not be a tax levied under the law and it would therefore not be open to the State to collect under the authority of a law enacted under Entry 54 of List II any such amount as it was not a tax on sale or purchase of goods.

The High Court held s. 11 (2) good as an ancillary provision with regard to the collection of sales or purchase tax and therefore incidental to the taxing power under Entry 54 of List II. Further the High Court took the view that assuming that Entry 54 of List II could not sustain s. 11 ( 2), it could be sustained under Entry 26 of List II. Consequently the writ petition was djsmissed.

The High Court having refused a certificate to appeal to this Court, the appellant obtained special leave and that is how the matter has come up before us.

It is necessary to read s. 11 of the Act in order to appre- 1964 elate the point urged on behalf of the appellant.

Section R. .tbdM'""i°QU4d 11 is in these terms:- •· Sah1 Ta ()6ica "ll(l) No person who is not registered as a dealer - •hall collect any amount by way of tax under Wanchoo I. this Act' nor shall a registered dealer make any such collection before the 1st day of May, 1950. except in accordance with such conditions and restrictions, if any, as may be prescribed : Provided that Government may exempt persons who are not registered dealers from the provisions of this sub-section until such date, not being later than the lst day of June, 1950, as Government may direct.

12) Notwithstanding to the contrary contained in any

nrder of an officer or tribunal or judgment, decree or order of a Court, every pe1son who has collected or collects on or before 1st May, 1950,

any amount by way of tax otherwise than in accordance. with the provisions of this Act shall pay over to the Government within such time and in such manner as may be prescrihed the amount so collected by him, and in default of such payment the said amount shall be i:!covered from him as if it were arrears of land reveoue."

It will be seen that s. ll (l) forbids an unregistered dealer from collecting any amount by way of tax under the Act That provision however does not apply in the present case, for the appellant is admittedly a registered dealer. Further s. 11 (l) lays down that a registered dealer shall not make any such collection before May 1, 1950, except in accordance with such conditions and restrictions, if any, as may be prescribed.

This provision again does not apply, for we are not concerned here with any collection made by the appellant before May l, 1950. The prohibition therefore of s. It (l) did not apply to the appellant. Then comes s. 11 (2). It applies to collections made after May I, 1950 by any person whether a registered dealer or otherwise and lays down that any amount collected by way of tax otherwise than in accordance with the provisions of the Act &ball be paid over to

1~ the Government and in default of such payment, the said R. Abdul Quader amount shall be recovered from such person as if it were

• / v. Offe arrears of land revenue.

It is clear from the words "other-' ., a., iax cer . th . d .th th . . ti. A " th _ . wise an m accor ance w1 e prov1S1ons of

!IS ct at Wanchoo I. though the amount may have been collected by way of tax it was not exigible as tax under the Act. Section 11 (2) thus provides that amounts collected by way of tax though not exigible as tax under the Act sha!l be paid over to (jovernment, and if not paid over they shall be recovered from such person as if they were arrears of land revenue.

Clearly therefore s. 11 (2) as it stands provides for recovery of an amount collected by way of tax as arrears of land revenue though the amount was not due as tax under the Act.

The first question therefore that falls for consideration is whether it was open to the State legislature under its powers under Entry 54 of List II to make a provision to the effect that I11oney co!leeted by way of tax, even though it is not due as a tax under the Act, shall be made over to Government.

Now it is clear that the sums so collected by way of tax are not in fact tax exigible under the Act. So it cannot be said that the State legislature was directly legislating for the imposition of sales or purchase tax under Entry 54 of List II when it made such a provision, for on the face of the provision, the amount, though collected by way of tax, was not exigible as tax under the law. The provision however is attempted to be justified on the ground that though it may not be open to a State legislature to make provision for the recovery of an amount which is not a tax under Entry 54 of List II in a law made for that purpose, it. would still be open to the legislature to provide for paying over all the amounts collected by way of tax by persons, even though they really are not exigible as tax, as part of the incidental and ancillary power to make provision for the levy and collection of such tax. t.: ow there is no dispute that the heads of legislation in the various Lists in the Seventh Schedule should be interpreted widely so as to take in all matters whkh ari: of a 'haracter incidental tt> the topics mentioned tho:rein.

Even so, there is a limit to such incidental or ancillary power flowing from the legislative entries in the various Lists in the Seventh Schedule. These incidental and ancillary powers have to be exercised in aid of the main topic of legislation.

which in the pn:sent case, is a tax on sale or purchase of 1961 g0ods. All powers necessary for the levy and collection of R. Abdul Qll<llkr

the tax concerned and for seeing that the tax is not evaded are v. comprised within the ambit of the legislative entry as ancillary Salea Tax Of!icA or incidental. But where the legislation under the relevant Wanchoo J. entry proceeds on the basis that the amount concerned is not a tax exigible under the law made under that entry, but even so lays down that though it is not exigible under the law, it shall be paid over to Government, merely because some dealers by mistake or otherwise have collected it as tax, it is difficult to see how such provision can be ancillary or incidental to the collection of tax legitimately due under a law made under the relevant taxing entry. We do not think that the ambit of ancillary or incidental power goes to the extent ot permitting the legislature to provide that though the amount collected- may be wrongly-by way of tax is not exigible under. the law as made under the relevant taxing entry, it sba!l still be paid over to Government, as if it were a tax. Tbe legislature cannot under Entry 54 of List II make a provision to the effect that even though a certain amount collected is not a tax on the sale or purchase of goods as laid down by the law, it will still be collected as if it was such a tax.

This is what s. 11 (2) has provided. Such a provision cannot in our opinion be treated as coming within incidental or ancillary powers which the legislature has got under the relevant taxing entry to ensure that the tax is levied and collected and that its evasion becomes impossible. We are therefore of opinion that the provision contained in s. 11 (2) cannot be made under Entry 54 of List Il and cannot be justified even as an incidental or ancillary provision permitted under that

emry.

An attempt was made to justify the provision as providing for a penalty.

But as we read s. 11 ('.\) we cannot find anything in it to justify that it is a penalty for breach of any prohibition in the Act.

Penalties imposed under taxing 'tatutes are generally with respect to attempts at evaion of

tr:xes or to default in the payment of taxes properly levied lscc ss. 28 and 46 of the Indian Income Tax Act. 1922). The Act also provides for penalties, for example s. 19 and s. 20.

The latter section makes certain acts or omissions of an

SUPREME COURT REPORT~ [1964]

~ assessee offences punishable by a magistrate subject to com- It. Abdul Quader position under s. 21. Section 11 (2) in our opinion has nothla/U T~ 06icn ing to do with penalties and cannot be justified as a penalty - on the dealer. Actually s. 20 makes provision in cl. (bl for Wanchoo J. penalty in case of breach of s. 11 (!) and makes the person committing a breach of that provision liable, on conviction by a Magistrate of the first class, to a fine. We are therefore of opinion that s. 11 (2) cannot be justified under Entry 54 of List II either as a provision for levying the tax or as an incidental or ancillary provision relating to the collection of tax.

In this connection we may refer to cl. (cl of s. 20, which provides that any person who fails "to pay the amounts specified in sub-section (2) of section 11 within the prescribed

time" shall on a conviction by a Magistrate be liable to fine.

It is remarkable that this provision makes the person punishable for his failure to pay the amount which is not authorised as a tax at all under the law, to Government. It does not provide for a penalty collecting the amount wrongly by way of tax from purchasers which may have been justified as a penalty for the purpose of carrying out the objects of the taxing legislation. If a dealer has collected anything from a purchaser which is not authorised by the taxing law, that Is a matter between him and the purchaser, and the purchaser may be entitled to recover the amount from the dealer. But unless the money so collected is due as a tax, the State cannot by law make it recoverable simply because it has been wrongly collected by the dealer. This cannot be done directly for it is not a tax at al! within the meaning of Entry 54 of List II, nor can the State legislature under the guise of incidental or anci!lary power do indirectly what it cannot do directly. We are therefore of opinion that s.11 (21 is not within the competence of the State legislature under Entry 54 of List II.

The respondent in this connection relies on the decision of this Court in The Orient Paper Mills Limited v. The State of Orissa ( 1). That case in our opinion has no application to the facts of the present case.

In that case the dealer had been assessed to tax and had paid the tax.

Later in view of the judgment of this Court in State of Bombay v.

The United Motors (India) Limited( 2) the amounts paid in

(l) [1962] 1 S. C. R. 549.

(2) [1953] S. C. R. 1069.

respect of goods despatched for consumption outside the 1964 State were held 'to be not taxable. The dealer then applied R. Abd:i"Quod., for refund of tax, which was held to be not exigible. The Sak •· Of/br refund was refused and and the dealer went to the High Wanc":oo 1.

Court by a writ petition claiming that it was entitled to refund under s. 14 of the Orissa Sales Tax Act (which was the law under consideration in that case). The High Court allowed the petition in part and there were appeals to this Court both by the dealer and the State. In the meantime, the Orissa legislature amended the law, by introducing s. 14A, in the principal Act, which provided that refund could be claimed only by a person from whom the dealer had actually realised the amount as tax. That provision was challenged in this Court but was upheld on the ground that it came within the incidental power arising out of Entry 54 of List II. That matter dealt with a question of refund and it cannot be doubted that refund of the tax collected iS aiways a matter covered by incidental and ancillary powers relating to the levy and collection of tax.

We are not dealing with a case of refund in the present case. What s. 11 (2) provides is that something collected by way of tax, though it iS not really due as a tax under the law enacted under Entry 54 of List II must be paid to the Government.

This situation in our opinion is entirely different from the situation in the Orient Paper Mills Limited's case(').

The respondent further relies on a decision of the Madras High Court in Indian Aluminium Co. v. The State of Madras(2).

That decision was with respect to s. 8-B of the Madras General Sales Tax Act of 1939 as amended by Madras Act I of 1957. Though the words in s. 8-B (2) were not exactly the same as the words in s. 11 (2), with which we are concerned here, the provision in substance was to the same effect as s. 11 (2).

In view of what we have said above, that decision must be held to be incorrect.

_Lastly, we come to the contention of the repondent that s. 11 (2) is within the legislative competence of the State legislature in view of Entry 26 of List II.

Tht entry deals with "trade and commerce within the State subject to the provisions of entry 33 of List III". It is well settled that

(I) [1962] I S.C.R. S49.

(2) [1962] XIII S.T.C. 967.

1964 taxing entries in the legislative Lists I and II of the Seventh R. Abuad., Schedule &re entirely separate from other entries. Entry 26

S I T v. Offi of List II deals with trade and commerce and has nothing a 81 aJ: ca to d h · I' gl _ o wit taxIJJg or recovermg amounts rea 1sed wron y Wanchoo J. as tax.

It is said that s. 11 (2) regulates trade and commerce and the State legislature therefore was competent under Entry 26 of List II to enact it.

We have not been Ahle to understand what such a provision has to do with the regulation of trade and commerce; it can only be justified as a provision ancillary to a taxing statute. If it cannot be so justified-as we hold that it cannot-we are unable to uphold it as regulating trade and commerce under Entry 26 ot List II. There is in our opinion no element of regulation of trade and commerce in a provision like s. 11 (2).

February 24.

We are therefore of opinion that the State legislature was Incompetent to enact a provision likes. 11 (2).

We may also add that the provision contained in s. 20(c), being consequen tial to s. 11 (2) will fall along with it. In consequence it was not open to the Sales Tax Officer to ask the appellant to make ov~ what he had collected from the purchasers wrongly as sales tax. It is not disputed, as appears from the final assessment order of the Sales Tax Officer, that the appellant was not liable to pay the amount as sales tax for the relevant period. We therefore allow the appeal and quash the assessment order dated sptember 27, 1956 insofar as it is based on s. 11 (2).

Th~ appellant will get his costs in this Court as well as in the High Court.

Appeal allowed.

RAF1QUENNESSA

LAL BAHADUR CHETRI (DEAD) THROUGH HTS

REPRESENTATIVES AND OTHERS

(P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO, J. c.

SHAH, N. RAJAGOPALA AYYANGAR ANDS. M. S!KRI JJ.)

Retroactivity-Enactment of the A.ct pcndinr: apptal-Apptal if governed by the A.ct-Allam NonAgricultural Urhan Arecu Ttnanq Act, 19SS (Assam Act No. 12 of 19SS), •· S.

Parliament

Art. 14

March 31, 1949

R. ABDUL QUADER AND CO

SALES TAX OFFICER, HYDERABAD

B. GAJENDRAGADKAR

K. N. WANCHOO

K. C. DAS

GUPTA

J. C. SHAH

N. RAJAGOPALA AYYANGAll

Schedule VII

Salei Taz Act, 1950

Saki Taz

s. 11(2)

Hyderabad General Sales Tax Act

s. 11

s. 11

s. 11(2)

s. 11

Seventh Schedule

Section 11

s. 11(2)

S 1

CIVIL APPELLATE

K. R. Chaudhuri

A. Ranganadham Chetty

B. R. G.

WANCHoo

Pradesh High Court

s. 11

Hyderabad

March 31, 1954

Seventh Schedule

s. 11

s. 11

s. 11

of May, 1950

1st May, 1950

s. 11

May 1, 1950

May l, 1950

s. 11

Section 11

s. 11

Seventh Schedule

Seventh Schedule

R. Abdul Qll

s. 11

s. 11

s. 11

ss. 28 and 46

s. 19

s. 20

SUPREME COURT REPORT~ [1964]

s. 21

Section 11

s. 20

Wanchoo

s. 11

s. 11

s. 20

section 11

[1962] 1 S. C. R. 549

s. 14

Orissa legislature

s. 14A

s. 11

Orient Paper Mills Limited

Madras High Court

s. 8

Madras Act I of 1957

s. 8

s. 11

s. 11

s. 11

s. 11

s. 11

s. 20(c)

s. 11

sptember 27, 1956

s. 11

LAL BAHADUR CHETRI

P. B. GAJENDRAGADKAR

N. RAJAGOPALA AYYANGAR

M. S!KRI