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Walashan Prince Nawab Moazzam Jah Bahadur Vs. the Expenditure Tax Officer B Ward Mukarrab Jung Lane, Hyderabad-dn. - Court Judgment

LegalCrystal Citation
SubjectOther Taxes
CourtAndhra Pradesh High Court
Decided On
Case NumberWrit Petn. No. 243 of 1959
Judge
Reported inAIR1961AP374; [1961]43ITR239(AP)
ActsExpenditure-tax Act, 1957 - Sections 3(1) and 13(2); Constitution of India - Article 226
AppellantWalashan Prince Nawab Moazzam Jah Bahadur
RespondentThe Expenditure Tax Officer B Ward Mukarrab Jung Lane, Hyderabad-dn.
Appellant AdvocateRamaswami Iyengar and ;Anwarullah Pasha, Advs.
Respondent AdvocateC. Kondiah, Adv.
DispositionPetition dismissed
Excerpt:
.....tax officer - court found 'income' in proviso to section 3 (1) includes money received from trust - notice issued by expenditure tax officer satisfies requirement of section 13 (2) - petitioner failed to prove his case - held, no reason found to issue writ of prohibition. - - 9. the respondent was apparently not satisfied that the return made by the petitioner was correct and complete and so he caused a notice under section 15(2) to be served on the petitioner on 24-1-1959, requiring him to produce any evidence on which he may rely in support of his return. i am clearly of opinion that it is. it will be observed that what the sub-section contemplates is the subjective satisfaction of the officer concerned, based, of course, not on suspicion or surmise but on 'prima facie'..........the said deed of trust for computing the total income of any of them under the provisions of the indian income-tax act or any other act relating to taxation on the income or gain and profits of any person in india provided however that if notwithstanding the provisions hereinabove contained any such tax, duty, dues or assessment, shall be charged or levied on either the settlor or the trustees or the beneficiaries under the said trust deed or any of them in respect of any income or corpus of the said sum of rupees one crore and eighty-two lakhs or any part thereof so deposited or if any part of such income or corpus be included in the total income of any of them for computing his or her income, gains' or profits by virtue of the provisions of the indian income-tax act or any other.....
Judgment:
ORDER

Basi Reddy, J.

1. This is a petition under Article 226 of the Constitution, challenging the validity of a notice dated 23-9-1958 issued by the respondent who is the Expenditure-tax Officer, Income-tax-cum-Wealth-tax Circle No. II, Hyderabad, under Section 13 (2) of the Expenditure-tax Act, 1957 (hereinafter referred to as the Act) and seeking an appropriate writ, more particularly a writ in the nature of prohibition, to forbid the respondent from taking any further steps under the Act. The petitioner denies his liability to be assessed under the Act and questions the jurisdiction of the respondent to proceed against him under the provisions of the Act.

2. Expenditure-tax is a novel piece of taxation unknown to the taxing system of any other country and was introduced in our country by Act XXIX of 1957 which was enacted by Parliament on the 17th September, 1957 and came into force on the 1st April, 1958. The object of the measure is threefold : firstly, to augment public revenues; secondly, to reduce excessive consumer-spending and to divert the surplus funds towards savings; and thirdly, together with the Wealth-lax Act and the Income-tax Act, to provide an effective weapon to counter tax-evasion and tax-avoidance.

3. Section 3 of the Act is the charging section and it provides that subject to the other provisions of the Act, for every financial year, a tax called expenditure-tax shall be levied at the rate or rates specified in the Schedule in respect of the expenditure incurred in the previous year by any individual or Hindu undivided family, subject to a proviso, which is in the following terms ;

'Provided that no expenditure-tax shall be payable by an assesses for any assessment year if his income from all sources during the relevant previous year as reduced by the amount of taxes to which such income may be liable under any other law for the time being in force, does not exceed rupees thirty-six thousand.'

4. In view of the petitioner's principal contention in this case, it is important to note that the language of the section is general. It imposes a charge in respect of expenditure, irrespective of the source or sources from which the money came for such expenditure. The crucial words in the proviso are - 'income from all sources'.

5. Sections 7 to 10 of the Act, indicate the authorities who are to administer the Act and by Section 7 every Income-tax Officer having jurisdiction or exercising powers as such under the Income-tax Act in respect of any individual or Hindu undivided family, is authorized to perform the functions of an Expenditure-tax Officer under the Act in respect of such individual or Hindu undivided family.

6. The next section which is to be noted is Section 13. Sub-section (1) of that section requires every person who is liable to expenditure-tax under the Act to submit a return in the prescribed manner before the thirtieth day of June of each assessment year.

7. Sub-section (2) of Section 13, which is material for purposes of this case, runs thus :

'If the Expenditure-tax Officer is of the opinion that the expenditure of any person for any year is of such an amount as to render him liable to expenditure-tax, then, notwithstanding anything contained in sub-section (1), he may serve a notice upon such a person requiring him to furnish within such period, not being less than 30 days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be required in the notice relating to the expenditure of such person for the previous year mentioned in the notice.'

8. It was under this provision of law that the respondent, who is the appropriate authority under the Act, issued a notice dated 23-9-1958 which was served on the petitioner on 25-9-1958. In response to the notice, the petitioner furnished a provisional return on 10-1-1959 without prejudice to his claims for exemption.

9. The respondent was apparently not satisfied that the return made by the petitioner was correct and complete and so he caused a notice under Section 15(2) to be served on the petitioner on 24-1-1959, requiring him to produce any evidence on which he may rely in support of his return. The matter stood posted for enquiry to 23-2-1959. The enquiry was adjourned to the next day at the request of the petitioner's advocate. On 23-2-1959, the petitioner had filed the present writ petition and on 24-2-1959, this Court granted a rule nisi and stayed further proceedings before the respondent.

10. Here it will be convenient to notice the case set up by the petitioner in support of his claim to total immunity from taxation of the kind contemplated by the Act. The petitioner is the second son of II. E. II. the Nizam of Hyderabad. Prior to the Police Action, tho petitioner was receiving from the Government of Hyderabad, tho allowance given to the members of the family of H E. H. the Nizam and included in the Civil List of Hyderabad.

After the Police Action, H. E. H. the Nizam was desirous of providing for the petitioner's maintenance and expenses in a suitable manner in keeping with the dignity and status of the members of Ms family and with that end in view, he approached the Government of India for making suitable arrangements for the creation of a Trust in the manner set out in a Deed of Trust to be executed contemporaneously by H. E. H. the Nizam by which the petitioner could receive certain amounts specified therein out of the corpus and income of the Trust Fund,

Pursuant thereto, an arrangement was arrived at between H. E. II. the Nizam and the Governor-General of India representing the Government of India under which the Trustees of the Trust Fund were to deposit with the Government of India a sum of rupees one crore and eighty-two lakhs, on the Government of India agreeing to pay to the Trustees Interest thereon at the rate of one per cent per annum free of income-tax and all other taxes whatsoever and also upon the Government of India agreeing to pay to the Trustees out of the corpus certain further sums from time to time in all amounting to rupees six lakhs per annum inclusive of interest.

For giving effect to the terms under which the said deposit was agreed to be made, the Governor-General of India as representing the Government of India, consented to execute an Agreement embodying those terms. Accordingly an Agreement was executed on 8-10-1949 by three parties - The Governor-General of India as representing the Government of India, H. E. H. the Nizam, as the Settlor and the Trustees of the Trust Fund. The Trust Deed which was made pursuant to the above arrangement, was annexed to the said Agreement.

11. The material provisions of the Agreement arc as follows :

(1) The Trustees shall deposit with the Government of India rupees one crore and eighty-two lakhs to be settled upon trust by the Settlor uncler the Deed of Trust.

(2) The Government of India shall out of its revenues pay the Trustees interest on the said sum of rupees one crore and eighty-two lakhs at the rate of one per cent per annum free of income-tax and all other taxes, dues, duties, and other assessments whatsoever until the sum of rupees one crore and eighty-two lakhs was fully paid out by the Government of India.

(3) The Government of India shall, out of the corpus of the said sum, pay to the Trustees every year such sum as together with the interest accrued would in all make up a sum of rupees six lakhs per annum.

12. Then follows the vital clause in the Agreement on which the petitioner bases his claim for exemption from payment of expenditure-tax. It is clause (4) and may be set out verbatimr:

'The Government of India hereby declares and agrees that the interest payable on the security of these presents shall be free from income-tax and all other taxes, dues, duties and assessments and that the Government of India shall not at any time asses; or levy on the Settlor or on the Trustees or any of them or on any of the beneficiaries under the said Deed of Trust any income-tax, super tax or other tax, duty, dues or assessment in respect of any Income or corpus of the said sum of rupees one crore and eighty-two lakhs so deposited or of any part or parts thereof and any such income or corpus or any part thereof shall not at any time be included in the income of the Settlor or the Trustees or of any of them or any of the beneficiaries under the said Deed of Trust for computing the total income of any of them under the provisions of the Indian Income-tax Act or any other Act relating to taxation on the income or gain and profits of any person in India provided however that if notwithstanding the provisions hereinabove contained any such tax, duty, dues or assessment, shall be charged or levied on either the Settlor or the Trustees or the beneficiaries under the said Trust Deed or any of them in respect of any income or corpus of the said sum of rupees one crore and eighty-two lakhs or any part thereof so deposited or if any part of such income or corpus be included in the total income of any of them for computing his or her income, gains' or profits by virtue of the provisions of the Indian Income-tax Act or any other enactment or law for the time being in force in that behalf in India, then the Government of India shall forthwith refund, re-imburse and pay to such person the amount of such, tax, duty, dues or assessment charged or levied on him or her and/or the amount of additional tax, duty, dues or assessment which shall have been charged or levied on him or her by reason of any part of the said income or corpus being included in the total income of such persons for the purpose of assessing his or her income, gains or profits uncler the provisions of the Indian Income-tax Act or any other !aw or enactment for the lime being in force in that behalf in India.'

13. As part of the aforesaid arrangement arrived at with the Government of India, a Deed of Trust was executed by the H. E. H. the Nizam on the 8th October, 1949. After referring to the Agreement with the Government of India with regard to the said sum of rupees one crore and eighty-two lakhs and after reciting that pursuant to the said arrangement, the sum had been transferred and handed over to the Trustees, the Trust Deed proceeds to make provision for various matters connected with the administration of the Trust Fund.

The Deed also contains a provision for the deposit of the Trust Fund with the Government ot India and for recovery from the Government of India interest thereon and for paying it over to the petitioner free of income-tax, super-tax and all other taxes whatsoever until his death. It also contains a provision that out of the corpus of the Trust Fund a sum of rupees five lakhs per year was to be paid to the petitioner for current expenses and a further sum of rupees one lakh every year to meet unforeseen or emergent expenses.

14. Pursuant to the provisions of the Trust Deed, the petitioner has all along been receiving various amounts and has been utilising them for his maintenance and expenses.

15. It is contended on behalf of the petitioner that the petitioner is not at all liable to be assessed under the provision of the Act and consequently the notice issued by the respondent is illegal and without jurisdiction. It is urged that the amounts received by the petitioner under the Deed of Trust do not constitute 'income' within the meaning of the Act and in any event they are not assessable in view of the agreement entered into by H. E. H. the Nizam with the Government of India, according to which the sums payable to the petitioner were exempt from all taxes for all time. Therefore the petitioner's income from all sources during the relevant previous year as reduced by the amount of taxes to which such income is liable, does not exceed Rs. 36,000/-.

16. Reference is also made to the Nizam's Trust Deeds (Validation) Act 1950 (Hyderabad Act No. XXIV of 1950) whereby it was provided that all the provisions of any Trust Deed mentioned in the Schedule to the Act shall, notwithstanding anything contained in any other law for the time being in force, be valid and effectual for all purposes and shall have the force of law. The Schedule to the Act includes the aforesaid Trust Deed, made in favour of the petitioner bearing date 8th October, 1949 for rupees one crore and eighty-two lakhs.

17. Now the contention on behalf of the respondent may be noticed. It is contended that the notice issued by the respondent is not vitiated by an error of jurisdiction or by any other illegality. The respondent is an authority functioning under the Act and in issung the impugned notice, he was doing nothing more than what is enjoined on him by law. The respondent was of the opinion that the petitioner was liable to be assessed under the Act and there was ample material on which he could base that opinion.

The petitioner's income from all sources during the previous year which included more than rupees six lakhs received from the Trust Fund, was of the order of Rs. 6,85,862/- and after deducting the tax thereon which came to Rs. 550,948/-, the balance of income from all sources was Rs. I,34,914/- which is far beyond the statutory minimum of Rs. 36,000/-prcscribed by the Act; and the petitioner's expendi-ture for the previous year was of such an amount as to render him liable to expenditure tax.

18. It is further urged that the respondent is in duty bound to enforce the provisions of the Act, and there is nothing in the Act which exempts the petitioner from being assessed to expenditure-tax. The expenditure from the amounts received from the Trust Fund is not included in the exemptions enumerated in Section 5 of the Act; nor docs the petitioner's claim fall under any of the deductions and allowances envisaged by Section 6 of the Act in computing the taxable expenditure. In these circumstances the respondent, far from acting beyond his jurisdiction, was under a duty to lake steps to levy the tax and he has done so.

19. It is further contended on behalf of the respondent that the Agreement relied on by the petitioner does not bear the construction sought to be put upon it by the learned Advocate for the petitioner and it is argued that a lax on expenditure is outside its purview inasmuch as the critical words in clause (4) of the Agreement are :

'for computing the total income of any of them under the provisions of the Indian Income-tax Act or any other Act relating to taxation on the income or gain and profits of any person in India.'

20. It is further pointed out that the Act itself provides an elaborate machinery for correcting errors and redressing wrongs, and confers on the aggrieved party a right of appeal to the Appellate Assistant Commissioner from any order of the Expenditure-tax Officer (Section 21), and a further appeal to the Appellate Tribunal from an order passed by the Appellate Assistant Commissioner (Section 22). A right of reference to the High Court on question of law and a further appeal to the Supreme Court on a certificate given by the High Court are also provided for by Seections 25 and 27,

21. For purposes of this Writ Petition, I do not think it necessary or desirable to express a definite opinion as to the construction of clause 4 of the Agreement which has been extracted supra. Suffice it to say that the clause is not free from' ambiguity and its meaning is certainly not as obvious-as is sought to he made out by the learned Advocate for the petitioner.

22. The Nizam's Trust Deeds (Validation) Act of 1950, which gave the provisions of a Scheduled Trust Deed the force of law, has hardly any bearing on the question at issue for, if the terms of ihe Agreement between the Government of India and H. E. H. the Nizam are not unequivocal with regard to tax liability, the Trust Deed which purports to incorporate those terms, cannot resolve that difficulty. In any event the Hyderabad Act cannot have the effect of overriding the provisions of the Act.

23. The next question is whether the amount received by the petitioner from the Trust Fund is 'income' within the meaning of the proviso to Section 3(1) of the Act. I am clearly of opinion that it is. The term 'income' is wide in its import and elastic in its ambit. As observed by Lord Wright in Kamakshya Narain Singh v. Commr. of Income-tax, R. and O,, AIR 1943 PC 153:

'Income, it is true, is a word difficult and perhaps impossible to define in any precise general for-mula. It is a word of the broadest connotation ..... -Sir George Lowndes in Commr. of Income-tax, Bengal v. Shaw Wallace and Co., AIR 1932 PC 138 speaks of 'income' being likened pictorially to the fruit of a tree or the crop of a field. But it is clear that such picturesque similies cannot be used to limit the true character of income in genera.... The multiplicity of forms which 'income' may assume is beyond enumeration.'

24. In Navichandra Mafatlal v. Commr. of Income-tax Bombay City, (S) AIR 1935 SC 58, the Supreme Court refused to accede to the contention Ithat the word 'income' had acquired a restricted meaning by reason of a legislative practice supposed to obtain in England. In that case their Lordships were considering the question whether capital gains could be regarded as 'income'. In the course of his Judgment Das J. (as be then was) observed at page 61 :

'What, then, is the ordinary, natural and grammatical meaning of the word 'income'? According to the dictionary it means 'a thing that comes in' (See Oxford Dictionary, Vol. V, p. 162; Stroud, Vol. II, pp. 14-16). In the United States of America and in Australia both of which also are English-speaking countries the word 'income' is understood in a wide sense so as to include a capital gain. Reference may be made to - Eisner v. Macomber, (1919) 252 US 189; Merchant's Loan and Trust Co. v. Smietanka, (1920) 255 US 509; United States of America v. Stewart, (1940) 311 US 60; and Resch v. Federal Commr. of Taxation (1943) 66 C L R 198. In each of these cases very wide meaning was ascribed to the word 'income' as its natural meaning'.

25. The question then arises whether the respondent, in discharge of his statutory function, was justified in taking the income from the Trust Fund as the basis for issuing a notice under Section 13 (2) of the Act. Now, sub-section (2) of Section 13 says that if the Expenditure-tax Officer is of the opinion that the expenditure of any person for any year is of such an amount as to render him liable to expenditure-tax, then he may serve a notice upon that person requiring him to furnish a return in the prescribed manner.

It will be observed that what the sub-section contemplates is the subjective satisfaction of the Officer concerned, based, of course, not on suspicion or surmise but on 'prima facie' good material. Can it be said in the present case that the respondent was acting without any factual basis? The petitioner had admittedly received a sum of about six lakhs in the previous year. For purposes of income-tax that amount had been treated by the concerned authority as 'income' and the petitioner had acquiesced in it without demur.

It is said, however, that as the tax payable in respect of that assessment was borne by the Government of India, the petitioner was not in any way affected and that was the reason why he did not take the matter up in appeal. Be it so; but can the respondent be said to be in the wrong in proceeding on the footing that what was 'income' for purposes of income-tax, is 'income' for purposes of expenditure-tax as well?

Above all, the Act itself makes no provision for excluding the income received from the Trust Fund in computing the taxable expenditure, and the Agreement relied on by the petitioner is certainly not crystal clear on the point. In these circumstances, the contention that the respondent had acted without jurisdiction or in excess of jurisdiction in issuing the impugned notice, is in my opinion wholly untenable.

26. It is well-recognised that the office of the writ of prohibition is primarily supervisory having for its object the confinement of courts and tribunals of peculiar, limited or inferior jurisdiction within their bounds. Usurpation of power will be restrained by it. 'Prohibition is primarily and principally a preventive rather than a remedial or corrective remedy, its office being rather to arrest proceedings than to imdo them. ........ The inquiry goes rather to the question of power and jurisdiction of the inferior court to do the acts complained of, than to the nature or extent of the injury which has resulted therefrom to petitioners.' : (Ferris : 'Extraordinary Legal Remedies' at p. 418).

'As its name imports, the writ is one which commands the person or tribunal to whom it is directed not to do something which, by the suggestion of the relator, the court is informed he is about to do. The writ is commonly defined, substantially, as one to prevent a tribunal possessing judicial or quasi-judicial powers from exercising jurisdiction overmatters not within its cognizance, or exceeding its jurisdiction in matters of which it has cognisance . ..... Its principal purpose at the present time is to prevent an encroachment, excess, usurpation, or assumption of jurisdiction on the parts of an inferior court or tribunal, or, it has been said, to prevent some great outrage upon the settled principles of law and procedure, in cases where wrong, damage and injustice are likely to follow from, such action..... The writ of prohibition is one of the chief media by which superior courts exercise the constitutional or statutory power granted to such courts in the several jurisdictions of superintending control over inferior courts.' : (American Jurisprudence : Vol. 42 at pp. 139 and 141).

27. Applying the above tests, it is apparent that the petitioner has not succeeded in making out a case for the issue of a writ of prohibition. It has not been shown that the respondent has done anything which is expressly or impliedly forbidden by law. It has not been shown that the respondent has overstepped the bounds of his statutory authority or attempted to clutch at jurisdiction. It follows that the impugned notice is not bad for lack of jurisdiction, much less for a patent lack of jurisdiction, and the petitioner is not entitled to a writ of prohibition.

28. In the result the writ petition fails and is dismissed with costs. Advocate's fee: Rs. 100/-.


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