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P. Ganesh Nayak and ors. Vs. Commercial Tax Officer - Court Judgment

LegalCrystal Citation
SubjectSales Tax;Constitution
CourtKarnataka High Court
Decided On
Case NumberWrit Petn. Nos. 1098 of 1962, 113, 727, 728 and 729 of 1963 and S.T.R. Petn. Nos. 24 and 25 of 1962
Judge
Reported inAIR1964Kant240; AIR1964Mys240
ActsConstitution of India - Articles 14, 245, 245(1), 246 and 246(3); Mysore Sales Tax Act, 1957 - Sections 12A, 12A(1), 40 and 40(1-A); Mysore Sales Tax (Amendment) Act, 1962 - Sections 4, 6, 6(1) and 6(2); States Reorganisation Act - Sections 119; Mysore Sales Tax Act, 1953; Mysore Sales Tax Rules, 1957 - Rules 6 and 28; Mysore Sales Tax Act, 1955; Bombay Sales Tax Act, 1953 - Sections 15; Indian Income Tax Act - Sections 34, 34(1) and 34(3); Taxation of Income (Investigation Commission) Act - Sections 5(4)
AppellantP. Ganesh Nayak and ors.
RespondentCommercial Tax Officer
Appellant AdvocateK. Srinivasan and ;B.V. Katageri, Advs.
Respondent AdvocateD.M. Chandrasekhar, Asst. Adv. General
Excerpt:
.....the period of limitation merely because the appellate or revisional authority had opined that his income bad escaped assessment. the assessee himself being a party to the various proceedings envisaged in the impugned proviso and often himself being responsible for adopting some or all of those proceedings can hardly be heard to complain of the absence of the time limit in any such case. the rule derives justification from the difficulties arising in such cases and is clearly addressed to attain a specific purpose and the end sought to be attained by the section itself namely, preventing income from escaping assessment. i am, therefore, of opinion that the challenge to the proviso so far as it relates to the assesses who was a party to the various proceedings enumerated in it must fail...........or assessments, re-assessments, payments or recoveries made and all proceedings held for the levy, assessment, re-assessment and collection of tax or licence fee before the date of commencement of this act under the principal act, or under any enactment repealed by section 40 of the principal act, shall, notwithstanding any judgment, decree or order of any court, tribunal or other authority, be deemed to have been validly done, taken, determined, issued, made or held and shall have effect for all purposes, as if it had been done, taken, determined, issued, made or held under the principal act as amended by this act, 'or under the relevant repealed enactment as amended by this act, or under rule 6 of the mysore sales tax rules, as specified in the schedule to this act, as the case may be;.....
Judgment:

Hegde, J.

1. These petitions raise common questions of law. At the outset, the learned Counsel for the petitioners formulated six questions of law. They are :

(i) Sub-section (1A) of Section 40 of the Mysore Sales Tax Act, 1957 (to be hereinafter referred to as the 'Act') is beyond the competence of the State Legislature since the said subsection purports to amend the various enactments repealed by Section 40 (1) of the 'Act';

(ii) Sub-section (1A) of Section 40 of the 'Act' has to be struck down as ultra vires Under Article 245(1) read with Article 246(3) of the Constitution of India, since the State Legislature cannot have extra-territorial jurisdiction:

(iii) The introduction of Sub-section (1A) in Section 40 of the 'Act' in the year 1962 is opposed to Section 119 of the States Reorganisation Act;

(iv) Section 6 (1) of the Mysore Sales Tax (Amendment) Act, 1962 is a colourable piece of legislation and is liable to be struck down;

(v) Sub-section (1A) of Section 40 of the 'Act' has to be struck down even on the ground that a right which had become barred, cannot be revived by the new Act; and

(vi) Sub-section (:A) of Section 40 of the 'Act' is void as it contravenes the equality clause found in Article 14 of the Constitution of India.

2. The material facts found in these petitions may be briefly summarised thus: Original assessment to sales tax was made either under the Mysore Sales Tax Act 1953. Assessments made were set aside in appeal or revision with directions that re-assessment shall be made in the light of the directions given in the order. Accordingly, the petitioners were re-assessed. These reassessments in law are only assessments of escaped turnover -- See: S. Subbarayappa and Sons v. State of Mysore, 1962 40 Mys LJ 234. By the time steps were taken to re-assess the petitioners, the time for re-assessing escaped turnover had become barred either under Rule 28 of the Rules framed under the Mysore Sales Tax Act, 1955 or tinder Section 15 of the Bombay Sales Tax Act, 1953. But the period of limitation for assessing the escaped turnover was extended to five years.

Sections in the amendment Act (Act 26 of 1962) which are material for our purpose are Sections 4 and 6. We shall quote them in full.

'4. In Section 40 of the Principal Act after Sub-section (1). the following sub-section shall be and shall always be deemed to have been inserted namely: --

'(1-A) Notwithstanding anything contained in Sub-section (1), nothing contained in any of the repealed enactments or the rules made thereunder limiting the time within which any action may be taken or any order, 'assessment of reassessment may be made shall apply to an assessment or re-assessment made on the assesses or any person in consequence of or to give effect to,any finding, direction of order made under anyprovision of the relevant repealed enactment orany judgment, decree or order made by theSupreme Court, the High Court or anyother court whether before or after the commencement of this Act.

Section 6 reads:

'(1) Anything done or any action taken or purported to be done or taken including the determination of the total and taxable turnover of any person under Rule 6 of the Mysore Sales Tax Rules, 1957, any notices or orders issued, or assessments, re-assessments, payments or recoveries made and all proceedings held for the levy, assessment, re-assessment and collection of tax or licence fee before the date of commencement of this Act under the Principal Act, or under any enactment repealed by Section 40 of the Principal Act, shall, notwithstanding any judgment, decree or order of any court, tribunal or other authority, be deemed to have been validly done, taken, determined, issued, made or held and shall have effect for all purposes, as if it had been done, taken, determined, issued, made or held under the principal Act as amended by this Act, 'or under the relevant repealed enactment as amended by this Act, or under Rule 6 of the Mysore Sales Tax Rules, as specified in the schedule to this Act, as the case may be; and accordingly, --

(a) no suit or other proceeding shall be entertained or continued in any Court for the refund of any tax or licence fee paid under the principal Act or under the relevant repealed enactment;

(b) no court shall enforce any decree or order directing/the refund of any tax or licence fee paid under the principal Act or under the relevant repealed enactment;

(c) any tax or licence fee may be assessed or re-assessed or recovered under the Principal Act as amended by this Act, or under the relevant repealed enactment as amended by Section 4 of this Act.

(2) For the removal of doubts it is hereby declared that the provisions of Section 12A of the principal Act as amended by this Act, and Subsection (1-A) of Section 40 of the principal Act shall apply to any assessment or re-assessment to tax or licence fee on. the turnover of a dealer or other person in respect of any year or period ending before the date of commencement of this Act, or the date of commencement of the principal Act, as the case may be, and any notice issued and assessment made whether before or after the date of commencement of this Act, in accordance with Sub-section (i) of Section 12A of the principal Act as amended by this Act or in accordance with the corresponding provision of any of the enactments repealed by Section 40 of the principal Act or the rule made under any such repealed enactment, shall, notwithstanding any judgment or order of any Court, tribunal or other authority, be deemed to be validly issued of made, as the case may be, and no such notice assessment or re-assessment. shall be called in question on the ground. -

'(a) that at the time of the issue of the notice, the period within which such notice could have been issued had expired in respect of the year to which the notice relates; or

(b) that the provisions of Section 12-A of the principal Act as amended by this Act or Sub-section (1A) of Section 40 of the principal Act do not apply in respect of an assessment or re-assessment to tax or licence fee of the turnover of a dealer or other persons for any year prior to the date of commencement of this Act'.

3. After perusing the judgment of this Court in W. P. No. 287 of 1960, (Mys) Sri K. Srinivasan and Sri Katageri, the learned counsel for the petitioners did not argue the first three-points formulated by them as they were covered by that decision. Therefore, there is no need to deal with them.

4. So far as the fourth point is concerned, the crux of the matter is to see whether the State Legislature had competence to enact the provision in question. If the State Legislature had competence, which question we shall examine under points five and six, then the reason behind the law becomes irrelevant. If the Legislature enacts a measure which it has competence to do, it is not open to the Court to examine the motive behind the legislation. The vires of a legislation does not depend on the purpose behind the legislation. It depends on the competence of the concerned legislature to enact the Statute in question. In Gajapati Narayan Deo v. State of Orissa, : [1954]1SCR1 the Supreme Court dealing with the question of colourable legislation observed thus:

'It may he made clear at the outset that the doctrine of colourable legislation dees not involve any question of 'bona fides' or 'mala fides' on the part of the legislature. The whole-doctrine resolves itself into the question of competency of a particular legislature to enact a particular law. If the legislature is competent to pass a particular law the motives which impelled it to act are really irrelevant. On the other hand, if the legislature lacks competency, the question of motive does not arise at all. Whether a statute is constitutional or not is thus always a question of power. Vide Cooley's Constitutional Limitation. Vol. I, p. 379 .....'

Whenever a vested right is affected by any piece . of legislation, then in the absence of clear words to the contrary in the Statute the presumption is that the legislation in question is prospective in character. It was so laid down in Debi Dutt v. T. Bellan, : AIR1959Cal567 . In this case, as in all others, in order to find out the legislative intention, which in the final analysis is the governing factor we have to go to the language of the Statute.

5. The legislatures have plenary powers over the legislative field allocated to them. Unless prohibited by the Constitution they can enact not only prospective legislation but also retrospective as well as retroactive legislations. They can resurrect laws which are dead and amend them, (See the decision of this Court in W. P. No. 287 of 1960 (Mys) ).

6. When we speak of a debt being barred, we really mean the remedy is barred. The bar of remedy does not wipe out the 'debt'. Therefore, if the bat is removed there can be no obstacle in recovering the 'debt'. For this view of mine, I seek support from the. decision of Hidayatullah and Raghubar Dayal, JJ. in S. C. Prashar v. Vasantsen Dwarkadas : [1963]49ITR1(SC) . Though the decision in that case was rendered by majority of 3 to 2 and the learned Judges mentioned above were in a minority on the point under consideration there was no majority view as such.

7. For the reasons mentioned above, we hold against the petitioners under point five.

8. This leaves us with the last point which is the most controversial one. It is contended that the amendment effected to Section 40 of the 'Act' as per Section 4 of the amending Act 1962 (Act 26 of 1962) and further declared by Section 6 (2) of the amending Act is ultra vires of Article 14 of the Constitution as it differentiates without valid reasons between the assessees mentioned in the amending Section 4 and the other assessees.

In support of this contention, reliance is placed on the decision of the Supreme Court in Suraj Mall Mohta and Co. v. A. V. Visvanatha Sastry, : [1954]26ITR1(SC) , observations of Das J. in : [1963]49ITR1(SC) and the observations of Chagla, C. J. in S. C. Prashar v. Vasantsen Dwarkadas. : AIR1956Bom530 . These are all decisions rendered under Section 34 of the Indian Income Tax Act, 1922. That section as amended up to 1959 is in part materia with Section 40 of the Act as amended by Sections 4 and 6 of Act 26 of 1962.

9. The decision of the Supreme Court in : [1954]26ITR1(SC) is clearly distinguishable. On the facts of that case, there can be no doubt that discrimination was made between the two classes of assessees involved therein without any rational basis.

10. Undoubtedly the view taken by Chagla C. J. in : AIR1956Bom530 fully supports the contention advanced by the learned counsel for the petitioners. The learned Chief Justice was of the opinion that there was no rational distinction between the assessees whose assessments have been set aside and re-assessments ordered by the appellate or revisional authorities and the other assessees. The opinion of the learned Chief Justice in that regard is clearly obiter. The point that arose for decision in that case was whether a stranger to the earlier assessment proceedings is liable to be proceeded against after the period of limitation merely because the appellate or revisional authority had opined that his income bad escaped assessment. It is difficult to agree with Chagla, C. J. when he says that there is no valid distinction between the two classes of assessees. Assessments made might have been set aside by the appellate or the revisional authority for various reasons e. g. irregularities or illegalities committed in the course of the proceedings.

11. As against the view taken by Chagla,C. J., there is the view expressed by Desai, J.in the same case. Dealing with this question,Desai, J. observed :

'A classification is reasonable when it is not an arbitrary selection and rests on differences pertinent to the subject in respect of which the classification is made. The ostensible purpose for and the circumstances in which the classification or category is made is always a pertinent inquiry but is not sole test of the matter. Decided cases show that courts have sustained differentiation where the difference might not be apparently divorced from the purpose and circumstances in which any category was sought to be established by legislation. After all, laws are not abstract propositions and each classification has to be considered substantially and qualitatively and not superficially. The Article is a pledge of equality before the law and equal protection of laws, but it does not guarantee to all persons the benefit of the same laws and same remedy or the identical procedure. I shall only add this coming from the faintly academic to the purely practical that the differentiation between assessees entitled to claim protection of the time limit and those disentitled to do so by virtue of the fact that a finding was recorded or direction given in any of the proceedings enumerated in the section is not in any way divorced from the purpose and circumstances under which it was sought to be established. The assessee himself being a party to the various proceedings envisaged in the impugned proviso and often himself being responsible for adopting some or all of those proceedings can hardly be heard to complain of the absence of the time limit in any such case. Obviously the proviso, so far as it relates to an assessee who has been a party to those long drawn out proceedings, is directed to prevent him from escaping assessment or supplemental assessment. The rule derives justification from the difficulties arising in such cases and is clearly addressed to attain a specific purpose and the end sought to be attained by the section itself namely, preventing income from escaping assessment. In my judgment the classification is based on real and substantial distinction. It is not arbitrary but rests on a substantial basis. I am, therefore, of opinion that the challenge to the proviso so far as it relates to the assesses who was a party to the various proceedings enumerated in it must fail.'

12. I fully associate myself with the aboveobservations.

13. Now coming to the decision of the Supreme Court in : [1963]49ITR1(SC) on the point under consideration, the learned Judges constituting the Bench have spoken in divergent voices. Hidayatullah and Raghubar Dayal, JJ. held that the impugned provision was valid. Therefore it must be presumed that in their view it was not hit by Article 14 of the Constitution. S. K. Das, J. agreed with Chagla, C. J., in holding that the provision (in its entirety) was hit by Article 14. This is what he observed in that regard (page 11 of ITR (SC) ) : (at pp. 1362-1363 of AIR) :

'Now I proceed to discuss the first question as to whether this proviso (second proviso to Sub-section (3) of Section 34) applies in the present case. The question has two facets: (i) whether the proviso is constitutionally valid and (2) if it is constitutionally valid, does it apply to a case where the time limit fixed by Sub-section (1) of Section 34 had expired some time before April 1, 1952, the date on which the proviso came into effect? With regard to the first facet Chagla, C. J. had pointed out, rightly in my opinion, that the gerents with regard to whom a finding or direction is given belong really to the same category of persons who are liable to pay tax and have failed to pay it for one reason or another. Admittedly, persons who are liable to pay tax and have not paid it could not be proceeded against after the period of limitation, unless a finding or direction with regard to them was given by some tribunal under various sections mentioned in the proviso; therefore, out of the large category of people who were liable to pay tax but failed to pay it, a certain number is selected for action by the proviso and with regard to that small number the right of limitation given to them is taken away. The real question is, is there any rational basis for distinguishing between persons who are liable to pay tax and have failed to pay it and with regard to whom a finding or direction is given, and persons who are liable to pay tax and have failed to pay it and with regard to whom no finding or direction is given. I am in agreement with the view expressed by the learned Chief Justice that no rational basis has been made out for the distinction between the two classes of people referred to above, who really fall in the / same category and with regard to whom there was no difficulty in having a uniform provision of law. E am further in agreement with the view of the teamed Chief Justice that the principle laid down By this court in : [1954]26ITR1(SC) applies. In that case Sub-section (4) of Section 5 of the Taxation on Income (Investigation Commission) Act was challenged and this Court pointed out that there was nothing uncommon either in properties or in characteristics between persons who were discovered as evaders of income tax during an investigation conducted under Section 5 (1) and those who were discovered by the Income tax Officer to have evaded payment of income tax. Both these kinds of persons really belonged to the same category and therefore requird equal treatment. This Court pointed out that Section 34 of the Indian Income Tax Act and Sub-section (4) of Section 5 of the impugned Act dealt with persons who had similar characteristics and properties and therefore a different treatment of some out of the same class offended the equal protection clause embodied in Article 14 of the Constitution. It seems to me that the position is the same here. Whether persons who evade tax are discovered by means of a finding given by a tribunal or they are discovered by any ether method, they really belong to the same category and therefore required equal treatment. The second proviso to Sub-section (3) of Section 34 which came into effect from April r, 1952, patently introduced an unequal treatment in respect of some out of the same class of persona. Those whose liability to pay tax was discovered by one method could be proceeded against at any time and no limitation would apply in their case, and in the ease of others the limitation laid down by Sub-section (1) of Section 34 would apply. This in my opinion is unequal treatment which is not based on any rational ground.'

Kapur, J. who agreed with Das, J. on most points appears to have been inclined to agree with him on this point as well (as could be gathered from his judgment). But, when it came to giving a finding all that he observed was that

'there is no reasonable basis for classification between those who have escaped assessment under Section 34(1)(a) and those third parties who have escaped income tax but with regard to whom a direction or an order is made under proviso (ii) to Section 34(3) is well founded and therefore the provision is unconstitutional and hit by Article 14.'

He did not pronounce as regards the validity of that provision so far as it went against the assessee against whom findings have been made or directions given by any Tribunal.

13a. Sarkar, J. the other member of that Bench did not express any opinion in that decision on the point under consideration. But on the same day, the very Bench delivered the judgment in Commr. of Income Tax B and O v. S. Lakshmir Singh : [1963]49ITR70(SC) . The very question that was considered in Prashar's case again came up for consideration in Sardar Lakshmir Singh's case. Therein Sarkar J. observed that the second proviso to Section 34 (3) of the Income Tax Act, 1922, in so far as it relates to third parties is violative of Article 14. But in so far as it deals with the assessment of the assessee against whom finding is made or direction given, this is what the learned Judge observed: (at page 78 of ITR (SC)) : (at p. 1398 of AIR):

'It may be said though I do not pronounce finally on the question now -- that such an assessee may be put in a separate class, for, in his case, in his presence it has been found judicially that he has evaded tax. To that extent, he may be different from other evaders of tax and the differentia that distinguishes him may have a rational relation to the object of the Act, namely, prevention of evasion of tax and collection of tax that was due but had not been paid.'

13b. I had occasion to deal with the scope of Article 14 in W. P. No. 287 ot 1960 (Mys). This is what I observed therein:

'The complaint that the '1961 Act' is a discriminative measure as it purports to levy tax --the so called cess is admittedly a tax -- on only some factories in India is not well founded. We have earlier seen the history of the legislation and the reasons which influenced the Parliament to enact that measure. It is clear that the Parliament wanted to save some of the State Governments from reimbursing the tax already collected and to permit them to collect the tax levied but aot collected under the State Laws held to be invalid. Hence, there is a classification, which has a rational basis and that classification is clearly the result of the object intended to be achieved by the '1961 ACT'. As observed by the Supreme Court in Ammerunnissa Begum v. Mahboob Begum, : [1953]4SCR404 :

'A legislature which must, of necessity, have the power of making special laws to attain particular objects must have target powers of selection or classification of persons and things upon which such laws are to operate. Hence mere differentiation or inequality of treatment does not per se amount to discrimination, and it is necessary to show that the selection or differentiation is unreasonable or arbitrary and that it does not rest on any rational basis having regard to the object which the legislature has in view in order to invalidate an enactment under Article 14.'

'A somewhat similar view was expressed by the Supreme Court in Ram Prasad Narayan Sahi v. State of Bihar, : [1953]4SCR1129 ; State of Rajasthan v. Manohar Singhji, : [1954]1SCR996 and Ram Krishna Dalmia v. S.R. Tendolkar, : [1959]1SCR279 . The rule of classification is equally applicable to taxation measures. In Kunnathat Moopil Nair v. State of Kerala, : [1961]3SCR77 , the Supreme Court observed that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in Article 14, though the courts are not concerned with the policy underlying a taxing statute or whether a particular tax could not have been imposed in a different way or in a way that the court might think more just and equitable; if the legislature has classified persons or properties into different categories which are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is unequal; similarly, different kinds of property may be subjected to different rates of taxation, but so long as there is a rational basis for the classification, made. Article 14 will not be in the way of such classification resulting in equal burdens on different classes of properties.'

14. Courts have repeatedly laid down that no provision in a Statute should be struck down unless it is clear that the provision in question is bad in law. If two views are possible about the validity of a provision, then reliance should be placed on the presumption that it is valid. As noticed above, several learned judges of the Supreme Court and that of the High Courts have expressed divergent views on the point under consideration. That itself is a sufficient ground to rely on the presumption mentioned above.

15. For the reasons mentioned above, these petitions fail and they are dismissed. But in the circumstances of the case, we make no order as to costs.

16. Petitions dismissed.


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