TMI Blog2015 (3) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... reas in the original provision, no express reference was made to companies or associations of persons, and no reference whatsoever was made to a dissolved firm, both have now been added. By the explanation, which is for the removal of doubts, the legislature declares that where before dissolution of a firm, full payment is not received in respect of income that has been earned pre-dissolution, then notwithstanding such dissolution, the said income will be deemed to be the income of the firm in the year in which it is received or receivable and the firm shall be deemed to be in existence for such year for the purposes of assessment. It will be noticed that by this amendment, the basis of the law as it stood when Cardoza's case [1997 (4) TMI 61 - KARNATAKA High Court] was decided has been changed. Cardoza's case noticed that there was no deeming procedure that continued a firm that had been dissolved to be an assessee for the purposes of income that was earned by it pre-dissolution but received post-dissolution. The deeming fiction has now been introduced by the explanation (and with retrospective effect from 1975) thereby making it clear that the basis of the law as it stood whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inuance within thirty days thereof and where any person fails to give the notice required by this sub-section, such officer may direct that a sum shall be recovered from him by way of penalty not exceeding the amount of agricultural income-tax subsequently assessed on him in respect of any agricultural income of the company, firm or association of persons up to the date of the discontinuance of the business. (3) Where an assessment is to be made under sub-section (1), the Agricultural Income-tax officer may service on the person whose agricultural income is to be assessed, or, in the case of a firm on any person who was a member of such firm at the time of the discontinuance or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 18 and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. Sub-section (4) was added to Section 26 by amendment in 1987 and reads as follows: - Where any business through which agricultural income is received is discontinued in any year, any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its dissolution in respect of income received for supply of goods made by the firm prior to its dissolution. This question arose in the light of Section 26(4) and Section 27 as they then stood, that is, as they stood in 1987. The question was answered by the Bench after setting out the aforesaid provisions as follows: - We are, therefore, unable to hold that under section 27 the dissolved firm could be deemed to be in existence for purpose of assessment in respect of the income derived after the date of dissolution of the firm. In fact in W.P. No. 2397 and 2398 of 1988 that is the view taken by the Karnataka Appellate Tribunal and it is on that ground the assessment orders were set aside.The next point to be considered is whether section 26(4), as amended by Act 10 of 1987, could be of any help to the respondent. Learned counsel for the petitioners contended that section 26(4) applies only to a case of discontinuance of the business and not to a case of dissolution of the firm, that section 27 makes a distinction between discontinuance of a business and dissolution of the firm, and that as such section 26(4) does not apply to a case of dissolution of the firm. It is no doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuance of business of a firm as opposed to dissolution of a firm. The court specifically held that there was nothing in Section 26(4) as it then stood or Section 27 to indicate that where the firm is dissolved and income is received after dissolution in respect of agricultural produce supplied by the firm before dissolution, the firm itself could be assessed in the year of receipt of income notwithstanding its dissolution. Faced with this decision of the Karnataka High Court, the legislature amended Section 26(4) retrospectively that is, with effect from, 01.04.1975. The amended provision now reads as follows: - 26(4) Where any business through which agricultural income is received by a company, firm or association of persons is discontinued or any such firm or association is dissolved in any year, any sum received after the discontinuance or dissolution shall be deemed to be income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance or dissolution. Explanation: - For the removal of doubts, it is hereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court of Karnataka. The Single Judge repelled the challenge basically on the ground that the explanation only clarified the main provision and therefore did not go beyond the main provision. Equally, since the legislature has the right to amend both prospectively and retrospectively, all that was done in the present case was an exercise of legislative power retrospectively and therefore, no question arose of any discrimination on this count. The Single Judge therefore, dismissed the writ petitions before him. In appeal before the Division Bench, the Division Bench set out all the aforesaid provisions and ultimately found, following the judgment in D. Cawasji and Co., Mysore v. State of Mysore and another [1984 (Supp) SCC 490], that the amending Act of 1997 suffered from the vice that was found in Cawasji's case, namely that it interfered directly with the judgment of a High Court and would therefore, have to be struck down as unconstitutional on this score alone. This the Division Bench found, because, according to the Division Bench, in the statement of objects and reasons for the 1997 amendment, it was held that the object of the amendment was to undo the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the higher rate of 45 per cent will have retrospective effect from April 1, 1966. The judgment of the High Court declaring the levy of sales tax on excise duty, education cess and health cess to be bad become conclusive and is binding on the parties. It may or may not have been competent for the State Legislature to validly remove the lacuna and remedy the defect in the earlier levy by seeking to impose sales tax through any amendment on excise duty, education cess and health cess; but, in any event, the State Government has not purported to do so through the Amending Act. As a result of the judgment of the High Court declaring such levy illegal, the State became obliged to refund the excess amount wrongfully and illegally collected by virtue of the specific direction to that effect in the earlier judgment. It appears that the only object of enacting the amended provision is to nullify the effect of the judgment which became conclusive and binding on the parties to enable the State Government to retain the amount wrongfully and illegally collected as sales tax and this object has been sought to be achieved by the impugned amendment which does not even purport or seek to remedy or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 = per cent to 45 per cent is in itself arbitrary and unreasonable. The second reason given is that the defect or lacuna found by the High Court is not sought to be remedied and the only justification for the steep rise in the rate of duty is to nullify the effect of an earlier binding judgment. It was held that the vice of illegal collection in the absence of the removal of the illegality which led to the invalidation of the earlier levy continued to taint the earlier levy. This judgment is wholly distinguishable from the facts in the present case. All that has been done in the present case is to remove the basis of the law as it stood in 1987 which was interpreted in Cardoza's case as leading to a particular result. All that the legislature has done in the present case is to say that with effect from 01.04.1975, dissolved firms will by legal fiction, continue to be assessed, for the purposes of levy and collection of agricultural income tax, insofar as they receive income post dissolution but relating to transactions pre-dissolution. In no manner has the legislature in the present case sought to directly nullify the judgment in Cardoza's case. All that has happened ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure seek to render the judgment of the Court ineffective and inoperative by amending or rectifying the defect or the lacuna pointed out, on the basis of which the judgment was rendered. In my opinion, therefore, the said judgment cannot be understood as supporting the appellant's submission nor can it be read as militating against the well-accepted power of Parliament which has been reiterated in innumerable judgments of this Court. In the Indian Aluminium Co. and others v. State of Kerala and others [(1996) 7 SCC 637], there is a long discussion coupled with a large number of judgments on validation acts. Cawasji's case was dealt with in para 52 in the following terms: In D. Cawasji Co. v. State of Mysore the High Court in a writ filed by the appellant had held that the State Government was devoid of power under Section 19 of the Sales Tax Act to collect sales tax and excise duty which is not a part of the selling price. Mandamus for refund was issued. Appeal filed in this Court was withdrawn and the Sales Tax (Amendment) Act was enacted enhancing sales tax from original 6 per cent to 45 per cent with retrospective effect. Section 3 validated the previous asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not encroachment on judicial power. (8) In exercising legislative power, the legislature by mere declaration, without anything more, cannot directly overrule, revise or override a judicial decision. It can render judicial decision ineffective by enacting valid law on the topic within its legislative field fundamentally altering or changing its character retrospectively. The changed or altered conditions are such that the previous decision would not have been rendered by the court, if those conditions had existed at the time of declaring the law as invalid. It is also empowered to give effect to retrospective legislation with a deeming date or with effect from a particular date. The legislature can change the character of the tax or duty from impermissible to permissible tax but the tax or levy should answer such character and the legislature is competent to recover the invalid tax validating such a tax on removing the invalid base for recovery from the subject or render the recovery from the State ineffectual. It is competent for the legislature to enact the law with retrospective effect and authorise its agencies to levy and collect the tax on that basis, make the imposition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has lawfully enjoyed as a vested statutory right cannot be taken away unless there be strong and exceptional circumstances justifying the said withdrawal. On facts again, this judgment does not apply. There is no withdrawal of any right which has become a vested statutory right which deprives an assessee of anything in the present case. As has been noted above, what was taxable in the hands of a recipient assessee is now taxable in the hands of a dissolved firm post-dissolution only for certain purposes. This judgment also therefore, cannot have any application in the present factual scenario. Lastly, the judgment in Hardev Motor Transport v. State of M. P. and others [(2006) 8 SCC 613] was cited before us. Para 31 thereof was read out in support of the proposition that by inserting an explanation in a statute, the main provision of the Act cannot be defeated or enlarged. Applying this test to the present case, it is clear that in 1997 both the main provision, that is Section 26(4), as well as explanation were added retrospectively. The main provision has been expanded to include dissolved firms and the explanation creates a legal fiction in furtherance of the main provis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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