TMI Blog1957 (4) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... 1940-41 to 1946-47 the several petitioners were assessed to income-tax and they have been making payments towards the taxes as assessed, and appeals filed in regard to some of these assessments are pending before various Tribunals. While so, on or about the 4th of August, 1948, the authorised official under the Taxation on Income (Investigation Commission) Act, 1947, issued notices to the several petitioners, informing them that their cases had been referred to the Income-tax Investigation Commission under section 5(1) of the Act. Thereupon Messrs. Meenakshi Mills Ltd., the petitioners in W. P. No. 308 of 1955, filed an application before the Supreme Court under article 32 of the Constitution for quashing the proceedings before the Commission. The Supreme Court accepted the petition and holding that section 5(1) of the Taxation on Income (Investigation Commission) Act, 1947, was ultra vires the Constitution directed a writ of prohibition, by its judgment on 12th October, 1954, to issue against the Commission proceeding further with the case. Meanwhile, as a result of the decision of the Supreme Court rendered on 28th May, 1954, in Surajmal Mohta v. Viswanatha Sastri the Indian In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section unless he has recorded his reasons for doing so, and the Central Board of Revenue is satisfied on such reasons recorded that it is a fit case for the issue of such notic : Provided further that no such notice shall be issued after the 31st day of March, 1956. Notices were issued to these petitioners by the Special Income- tax Officer, Central Circle, (to whom the assessment proceedings in regard to these several petitioners were transferred by orders passed under section 5(7A) of the Income-tax Act) on 18th March, 1955, calling upon the petitioners to submit returns of their respective total assessable incomes for the assessment years, 1940-41 to 1946-47. The petitioners were given 35 days within which to comply with the notices and to submit the returns. The present writ petitions were thereupon filed for the issue of writs of prohibition, directing the Income-tax Officer to recall the notices and to forbear from proceeding under or in pursuance of the said notices. Four points were urged by Mr. Rajah Iyer, learned counsel for the petitioners, in support of this challenge to these notices dated 18th March, 195 : (1) section 34(1A) introduced by the Act XXX ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. (4) That there was no valid transfer of the income-tax assessment proceedings in relation to the Special Income-tax Officer, Central Circle, who issued the impugned notices dated 18th March, 1955, with the result that the notices being by an unauthorised person were invalid. We shall consider these objections in the order in which we have set them out. As regards the first point Mr. Rajah Iyer formulated his contentions thu : Upto 1947 India was a Dominion under the British Crown whose governance was regulated by the Government of India Act, 1935. The Indian Income-tax Act of 1922 was an existing law which continued to be in force by reason of section 292 of the Government of India Act 1935. It was under that law that the tax liability now sought to be enforced had been incurred by the petitioners, as the assessments sought to be reopened are as regards the years 1940-41 to 1946-47. These arrears of tax were therefore an asset which vested in His Majesty in right of the Government of India. On the passing of the Indian Independence Act, 1947, two new self-governing dominions, those of India and Pakistan, emerged. There was then a complete break with the past, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nferred by that Act. Mr. Rajah Iyer sought to place some reliance on the terms of section 2 of the Government of India Act, 1935. The purpose of this provision was to resume into the hands of the Crown all rights, authority and jurisdiction in and over the territories of British India, whether they be vested in the Secretary of State, the Governor-General in Council or the Provincial Governments and re-distribute them in the manner prescribed by the Act between the Central Government on the one hand and the Provinces on the other. We see no relevance in section 2 to the matter now before us. Before the Government of India Act, 1935, British India had a unitary Government, with the Central Legislature competent to enact laws on every topic over the entire territory of British India, and the local Governments and Legislatures exercised their powers subject to Central control by the Governor-General in Council. The Government of India Act, 1935, introduced Provincial autonomy, and thereafter the Center was disabled from interfering with the Provinces (except in an emergency or breakdown) on topics of legislation and administration committed to them under List II of Schedule VII. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any taxes outstanding immediately before the commencement of Part III of this Act shall be deemed to be due to and may be recovered by the Federal Government or a Provincial Government according as the proceeds of any such tax imposed after the commencement of Part III of this Act would be due to and recoverable by the Federal Government or the Provincial Government. This was the position when India was a dependency of the Crown of the United Kingdom and was subject to legislation by the Parliament of the United Kingdom. Then came the Indian Independence Act (10 and 11 Geo. 6, c. 30). Its preamble stated that it was an Act to make provisions for the setting up in India of two independent Dominions, to substitute other provisions for certain provisions of the Government of India Act, 1935, which apply outside those Dominions, and to provide for other matters consequential on or connected with the setting up of those Dominions. The operative portion of this enactment provided in section 1 that as and from the fifteenth day of August, 1947, two independent Dominions shall be set up in India to be known respectively as India and Pakistan. (2) The said Dominions are hereafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 7 enacted consequential provisions. Section 7(1)(a) enacted that as from the appointed day, His Majestys Government in the United Kingdom have no responsibility as respects the Government of any of the territories which, immediately before that day, were included in British India. Section 9 enabled the Governor-General, by order, to make such provision as appears to him to be necessary or expedien : (a) for bringing the provisions of this Act into effective operation; (b) for dividing between the new Dominions, and between the new Provinces, to be constituted under this Act, the powers, rights, property, duties and liabilities of the Governor-General in Council or, as the case may be, of the relevant Provinces which, under this Act, are to cease to exist; (c) for making omissions from, additions to, and adaptations and modifications of, the Government of India Act, 1935, and the orders in Council, rules and other instruments made thereunder, in their application to the separate new Dominions; (d) for removing difficulties arising in connection with the transition to the provisions of this Act. Section 18 is the only other relevant provision of this statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contentions raised by the learned counsel based on the exact scope of the provisions we have extracted. But before doing so well shall set out the provisions bearing on the next stage of the constitutional development, on which some reliance was placed on behalf of the petitioners. The Constitution of India came into force on 26th January, 1950. By its preamble it recited that the People of India having resolved to constitute India into a Sovereign Democratic Republic have adopted, enacted and given to themselves this Constitution. The Constitution repealed the Indian Independence Act as well as the Government of India Act, 1935, that is such portions as had not been omitted by the Orders in Council made under the Indian Independence Act. The repeal of the Government of India Act, 1935, however, was not intended to operate as a vacuum by obliterating the operation of previously existing statute law in the country, and accordingly article 372 enacte : 372. (1) Notwithstanding the repeal by this Constitution of the enactments referred to in article 395 but subject to the other provisions of this Constitution, all the law in force in the territory of India immediatel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prior to 1st April, 1937. This provision was enacted notwithstanding that section 292 of that Act continued in force the Income-tax Act as a piece of existing Indian law. This must have been because section 292 was not considered sufficient to enable arrears of tax to be claimed by the Central Government. The Independence Act extinguished British India, and in its place there emerged two new States, namely, the Dominions of India and Pakistan. Section 18 of the Indian Independence Act, which no doubt enabled the existing law which was in force in British India to continue in operation in the Dominion of India, which newly emerged, without a provision in terms of section 173(4) of the Government India Act, 1935, is not sufficient to vest in the new Dominion the right to the arrears of tax due to the British Crown in right of British India. With the extinction of British India that property also got extinguished, as there was no provision in the Indian Independence Act whereby the Crown transferred that property right to the new Dominion. If the learned counsel was right so far, the Union Government could not make any claim to any asset which ceased to exit on the extinction of Briti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on its language, would have continued the operation of the Indian Income-tax Act, so as to permit the taxing authorities to take proceedings for the assessment, levy and collection of taxes, notwithstanding that they accrued or arose at a period anterior to the coming into force of the Government of India Act, 1935. Section 292 having provided for the continued operation of the law, there could be no hiatus, no break with the past, leaving a gap to be bridged. Thus understood it would be seen that it was not section 173 of the Government of India Act, 1935, which vested in the Central Government, constituted by the Government of India Act, 1935, the right to the arrears of tax which accrued or arose prior to 1st April, 1937. The function of section 173 on the other hand was merely to effect a distribution between the Centre and the Provinces of the right to these arrears as an item of property. Sub-section (4) of section 173 related to the right to the arrears of taxes and related it to the distribution of legislative power in regard to taxation. If the right to levy a tax was conferred under Schedule VII on the Centre, the arrears could be collected only by that authority. On t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his discretion or in the exercise of his individual judgment, or (iii) except in so far as is expressly permitted by any subsequent provisions of this Act to make any law derogating from any prerogative right of His Majesty to grant special leave to appeal from any Court. The Indian Independence Act of 1947 in effect repealed this section and enabled the Legislature of the Dominion of India to enact laws repealing or amending parliamentary legislation. (Vide section 6). It will be seen, therefore, that the change, though momentous, was really effected in a legal manner. In its ultimate analysis and in strict theory of law the Independence was one conferred by Parliament, by removing the legal fetters that previously detracted from complete sovereignty or independence of the Indian Dominion. No doubt there was the partition of the country into two Dominions of India and Pakistan. But this really does not affect the legal continuity, except so far as concerns the territory which ceased to be part of the Dominion of India. The British Crown went out of the picture as an authority possessing any legal powers in the Dominion of India. There is, however, no basis for the theory on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Pakistan. This particular provision in regard to income-tax is also emphasised by the Indian Independence Income-tax Proceedings Order of 1947, which determined the jurisdiction of the Income-tax Officers in the two dominions over assessees residing in particular areas. We are, therefore, clearly of the opinion that (1) the arrears of taxes due to the British Indian Central Government under the Government of India Act, 1935, vested in the self-governing Dominion of India which was brought into existence by the Indian Independence Act, 1947, subject to the distribution effected between India and Pakistan under the various Orders in Council including the Arbitral Proceedings Order promulgated under the latter statute; (2) there is no basis for the theory that these arrears were retained by the British Government, and that they got extinguished when British India disappeared and India became a self-governing dominion; (3) that there was no break or hiatus in the basic law governing income-tax by reason of the coming into force of the Government of India Act, 1935, or the emergence of India as a self-governing dominion by reason of the Indian Independence Act of 1947. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar as the Income-tax Act itself is concerned, its operation is without a break by virtue of article 372 of the Constitution. As to the effect of article 372 of the Constitution the learned Advocate-General cited to us the judgment of Lord Sankey in Performing Right Society v. Bray Urban District Council and particularly to a passage therein at page 399, where, dealing with the effect of article 73 of the Irish Free State Act, which was in terms identical with article 372 of our Constitution, the learned Lord sai : The right view to take is that by virtue of Article 73 all such laws as were in force immediately before December 6, 1922, (the appointed date) continued and remained in force except so far as they were inconsistent with the Constitution. In this connection we are tempted to quote a passage from Hydes International Law at page 397 which is in these term : Law once established continues until changed by some competent legislative power. it is not changed merely by change of Sovereignty. Quoting Beale the learned author says in a footnot : There can be no break or interregnum in law. Once created it persists until a change takes place and when changed, it continues in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th July, 1954. In support of this proposition learned counsel relied on the decision of the Andhra High Court in Lakshminarayana Chetti v. Additional Income-tax officer, Nellore. We see no substance in this argument. The date, 17th July, 1954, was obviously a reference to the date when the ordinance which this amending Act replaced was promulgated, and the purpose of the mention of this date in the enactment was to confer on and continue, the validity of the notices which had already been issued and the proceedings initiated thereby. Section 34(1A) expressly refers to the assessments which could be reopened by specific reference to particular assessment years, and in the face of this language the contention of the learned counsel does not merit serious consideration. It was also suggested by the learned junior counsel for the petitioners, that an amendment of section 34 alone would not enable the Income-tax Officer to reopen the assessments, but that there ought to be a retrospective amendment of the relevant Finance Acts of the respective assessment years. A number of decisions were cited on this point as supporting the proposition, that without an amendment of the relevant Financ ..... 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