1957 (4) TMI 83 - HC - Income Tax

Summary

Issues Involved:
1. Constitutional validity of section 34(1A) of the Indian Income-tax Act.
2. Legislative power of Parliament to reopen assessments after the period of limitation.
3. Competence of Parliament to retrospectively impose taxes for a pre-Constitution period.
4. Validity of transfer of income-tax assessment proceedings to the Special Income-tax Officer.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 34(1A) of the Indian Income-tax Act:
The petitioners challenged the validity of a notice issued under section 34(1A) of the Indian Income-tax Act, introduced by the Amending Act XXXIII of 1954. The argument was that the tax payable for the assessment years 1940-1947 represented sums due to the Government of British India, which ceased to exist post-independence, and these assets did not vest in the Union of India. The court rejected this argument, stating that there was no discontinuity between the Indian Union and its past regarding municipal law. The arrears of taxes due to the British Indian Central Government vested in the self-governing Dominion of India and subsequently in the Republic of India under the Constitution. The court emphasized the continuity of law despite changes in sovereignty and governance, supported by Article 372 of the Constitution and the Indian Independence Act, 1947.

2. Legislative Power of Parliament to Reopen Assessments After the Period of Limitation:
The petitioners contended that the liability to have an assessment reopened was barred after eight years, and the period could not be extended by the Legislature. The court found no basis for the argument that the expiry of the limitation period granted complete immunity from reassessment. It held that Parliament has the power to enact legislation with retrospective effect, as confirmed by the Supreme Court in a previous decision. The court also dismissed the argument that section 34(1A) could not reopen assessments completed before 17th July 1954, stating that the Amending Act's retrospective operation was intended to validate notices and proceedings initiated under the ordinance it replaced.

3. Competence of Parliament to Retrospectively Impose Taxes for a Pre-Constitution Period:
The petitioners argued that Parliament could not retrospectively impose taxes for a period before the Constitution came into force. This contention was rejected based on the Supreme Court's decision in Union of India v. Madan Gopal Kabra, which upheld Parliament's competence to enact retrospective tax legislation.

4. Validity of Transfer of Income-tax Assessment Proceedings to the Special Income-tax Officer:
The petitioners challenged the validity of the transfer of their income-tax assessments to the Special Income-tax Officer, arguing that the notices issued were by an unauthorized person. The court referred to the Supreme Court's decision in Pannalal Binjraj v. Union of India, which upheld the constitutional validity of the amendment to section 5(7A) of the Indian Income-tax Act, justifying the transfer of assessments. Consequently, the court rejected this contention as well.

Conclusion:
The writ petitions were dismissed, and the rule nisi issued was discharged. The petitioners were ordered to pay the costs of the Department, with a counsel's fee of Rs. 250 in each petition. The court upheld the constitutional validity of section 34(1A), Parliament's power to enact retrospective tax legislation, and the validity of the transfer of assessment proceedings.