MOHAPATRA, J. - This is a reference under section 66(1) of the Indian Income-tax Act in respect of a question of a question of law arising out of the order of the Appellate Tribunal of Income-tax dated August 26, 1953. The question of law referred is as follows :
'Whether on the facts and circumstance of the case the Orissa State is entitled to refund of tax paid by the companies on dividends distributed to the Mayurbhanj Bank ?'
The Mayurbhanj State Bank was constituted by on order of the Mayurbhanj State dated April 29, 1938. Under the provisions of the order, it appears, the bank was entirely owned by the State of Mayurbhanj. It will be pertinent here to refer to certain provisions of the order constituting the bank itself which will make it clear that the bank was owned by the State of Mayurbhanj.
'5. Subject to the provisions of this order, the bank shall be a department of the State, and it shall be entitled to all necessary help and co-operation of the other departments in furtherance of its objects.
6. The general control and direction of the affairs and business of the bank shall remain with the State authority whose decision shall remain with the State authority whose decision shall ordinarily be communicated by the Secretary, Finance Department.
II. (a) The State shall be deemed to guarantee the due fulfillment of all obligations that may be undertaken by the bank in the course of its authorised transactions.
(b) The bank shall not be placed in liquidation or closed down save by order of the Maharaja and in such manner as he may direct. In the event of liquidation or closing down of the bank, all the various assets of the bank shall vest in the State, and the lawful claims of the creditors and depositors shall be met in full by the State.'
The assessment years with which we are concerned are 1950-51 and 1951-52. The bank had invested very large amount in purchasing Government securities and shares of other companies. The income on the interest on Government securities was deducted at the source in making payment of interest to the bank. The dividends also which were paid to the Mayurbhanj State Bank were paid by the companies in which the bank had interested money in purchasing shares after the income-tax was paid by the companies. The present application has been filed for the refund of the income-tax paid by the Mayurbhanj State Bank on the above two counts and it is under the provisions of section 48 of the Indian Income-tax Act. A refund was allowed in respect of the Government securities but refused in respect of the dividends paid by the companies. So this reference is only in respect of the refund of the tax paid by the companies on dividends distributed to the Mayurbhanj State Bank.
2. It is to be observed here that the Mayurbhanj State itself merged into the State of Orissa. The contention on behalf of the bank of the Mayurbhanj State is that the bank having been completely owned by the State of Orissa which has fully approved the provisions of the order constituting the bank, no tax is payable as provided for under article 289 of the Constitution. Clause (1) of the article runs as follows :
'The property and income of a State shall be exempt form Union taxation.'
This is the only ground, that is, relying upon the provisions of article 289 of the Constitution, on the basis of which the petition for refund has been filed.
3. It is manifest that in order that the petition under section 48 of the Income-tax Act may be maintain the condition required under the section must be fulfilled.
The section runs thus :
'48. (1) If any individual, Hindu undivided family, company, local authority, firm or other association of person or any partner of a firm or member of an association individually satisfies the Income-tax Officer or other authority appointed by the Central Government in this behalf that the amount of tax paid by him or on his behalf or treated as paid on his behalf for any year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of any such excess.'
The first condition necessary in order that the petition may be taken to be competent is that the application must be by any of the persons enumerated in the section, that is by an individual, Hindu undivided family, company, local authority, firm or other association of persons or any partner of a firm or member of an association of person. In the present case manifestly the State of Orissa cannot be taken to be one of the persons enumerate in the section. Manifestly therefore the petition has got to be held to be incompetent. But Mr. Mohapatra, appearing on behalf of the Mayurbhanj State Bank, strongly contends that the application for refund is not by the State of Orissa but by the Mayurbhanj State Bank. We have got to look to the substance of the petition and to the form of its, whether in fact the application is by the State Government or by the Mayurbhanj State Bank. The admitted position is that the bank itself is completely owned by the State of Orissa and it is not incorporated under the provisions of the Indian Companies Act. Neither has it been registered under the Indian Partnership Act. But from the provisions of the order constituting the bank it is clear that it is not only completely owned, controlled an directed by the Finance Department of the State, but, by reference to paragraph II of the order, it is clear that in the event of liquidation or the closing down of the bank, all the various assets of the bank shall vest in the State, and the lawful claims of the creditors and depositors shall be met inn full by the State. It is significant to note, the basis of the petition is that it is exempt from payment of tax because of the provisions of article 289, the bank having been owned by the State. In our opinion the petitioner cannot avail of the advantage of having made an application by the State Bank as by a separate entity an yet claiming the benefits of article 289 on the basis that the bank having been owned by State is exempt from taxation. In our opinion, it is absolutely clear that the application is by the State of Orissa. This is exactly what appears in the agreed statement submitted to us by the Department, 'The assessee in this case for all practical purposes is the State of Orissa.'
4. There is a further difficulty also in the way of Mr. Mohapatra in respect of his contention when he refers to the question which we have got to answer. The question is only to effect 'whether on the facts and circumstances of the case the Orissa State is entitle to refund of tax paid.' It was agreed to all stages that the application was by the State of Orissa and that the advantage will go to the benefit of the Orissa State. This contention of Mr. Mohapatra therefore will fail.
5. The application is not competent under the provisions of section 48 of the Income-tax Act on another ground also. On the scheme of the Act itself it seems, the advantage of section 48 can be available only on the persons who are liable to pay taxes and are governed by the provisions of the Act. The very argument of the bank is that the property, the dividends, the liability to pay tax under the provisions of the Constitution. As such, the State cannot be an assessee. If the State who is exempt from the liability to pay tax under the provisions of the Constitution. As such, the State cannot be an assessee. If the State cannot be an assessee, it cannot also be entitled to the advantage of section 48 of the Act. We are strengthened in this view of ours by a direct authority on the point in Accountant-General, Baroa State v. Commissioner of Income-tax, Bombay City. Chagle, C.J., on a consideration of the provisions of sections 48 and 49B observed as follows :
'It is only an individual who can be made liable as an assessee who can apply for refund. The very foundation of Sir Jamshedjis application is that his client being a Ruler and being a sovereign cannot be an assessment under the Act. In my opinion the argument advanced by Sir Jamshedji is self-destructive. If he is not an assessee and cannot be assessed and cannot be subject to tax much less can he apply for a refund under section 48 which is a right granted only to those who can becomes assessees under the Act.'
For the above reasons therefore we will answer the question in the negative, that is to say, that the Orissa State is not entitled to refund of tax paid by the companies on dividends distributed to the Mayurbhanj Bank. The reference is accordingly disposed of. There will be no order as to costs.
MISRA, J. - I agree.
Reference answered in the negative.