S.K. Kapur, J.
1. This Letters Patent Appeal against the judgment of D.K. Mahajan, J. dated 5th November, 1962, passed on a writ petition filed by the appellants, arises in the following circumstances :
2. The appellants claim to be members of a joint Hindu family carrying on business in coarse cloth under the name and style of Messrs Chhotey Lal Sunder Lal in Jaipur city. The Jaipur Excess Profits Tax Act, 1944 (hereinafter referred to as the Jaipur Act) received the assent of the Maharaja and came in to force on the 22nd August, 1944. Three notices under Section 15 of the Jaipur Act were received by the appellants for the years ending Dewali, 1944, Dewali, 1945, and 31st March, 1946. The appellants deposited Rs. 3,066-9-0 on 13th January, 1947, with respect to the first year and Rs. 5,881-8-0 with respect to the second and third years, under Section 32 of the Jaipur Act.
3. There were rapid constitutional changes after August, 1947, with respect to the State of Jaipur, and eventually on 26th January, 1950, the Part B State of Rajasthan emerged as the successor State comprising of all the former Rajasthan States. On 31st March, 1950, the Finance Act of 1950 was passed, Section 13 whereof was in the following terms :
'13. (1) If immediately before the Ist day of April, 1950, there is in force in any Part B State other than Jammu and Kashmir or in Manipur, Tripura or Vindhya Pradesh or in the merged territory of Cooch-Behar any law relating to income-tax or super-tax or tax on profits of business, that law shall cease to have effect except for the purposes of the levy, assessment and collection of income-tax and supertax in respect of any period not included in the previous year for the purposes of assessment under the Indian Income-tax Act, 1922 (XI of 1922) for the year ending on the 31st day of March, 1951, or for any subsequent year, or, as the case, may be, the levy, assessment and collection of the tax on profits of business for any chargeable accounting period ending on or before the 31st day of March, 1949.
Provided that any reference in any such law to an officer, authority, tribunal or Court shall be construed as a reference to the corresponding Officer, authority, tribunal or Court appointed or constituted under the said Act, and if any question arises as to who such corresponding officer, authority, tribunal or Court is, the decision of the Central Government thereon shall be final:
Provided further that where under any such law, tax is chargeable on the total income including agricultural income, the assessment shall be made by the corresponding officer or authority referred to in the preceding proviso only in respect of income other than agricultural income, and the tax payable on such income shall be an amount bearing to the total amount of tax which would have been payable under the State law if a combined assessment had been made, the same proportion as such income bears to the total income including the agricultural income, so however, that for this purpose any reduction of tax allowed on the agricultural income by the State law shall not be taken into account.
(2) If immediately before the 1st day of April, 1950, there is in force in any State other than Jammu and Kashmir a law corresponding to, but other than, an Act referred to in Sub-section (1) or (2) of Section 11, such law is hereby repealed with effect from the said date; and if immediately before the said date there is in force in the State of Jammu and Kashmir a law corresponding to the Indian Post Office Act, 1898, such law is hereby repealed with effect from the said date :Provided that such repeal shall not affect (a) the previous operation of the corresponding law, or (b) any penalty, forfeiture or punishment ordered in respect of an offence committed against any such law, or (c) any investigation, legal proceedings or remedy in respect of such penally, forfeiture or punishment and any such investigation, legal proceedings or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed, as if this Act had not been passed.'
The scheme of taxation under the Jaipur Act is set out in Sections 39 to 44, which may now be read :
' 39. All amounts recovered under this Act shall be deposited in the State Treasury and a separate account thereof shall be maintained both at the Treasury and by the Accountant-General under the name of the 'Jaipur Excess Profits Fund' in this Act referred to as the ' fund '. Such account shall show separately the amount recovered from each person.
40. (1) Subject to the general control of the Government, the fund shall be operated upon by the Accountant-General with the approval of the Finance Minister to Government.
(2) All amounts of the Fund over and above a maximum to be fixed by the Government shall be invested in securities of the Government of India or in War Loans floated by that Government or in such other manner as the Government may approve.
41. All expenses incurred in the administration of this Act shall be met out of the fund and shall be charged against each person in such proportion and in such manner as the Government may prescribe.
42. The amount of Excess Profits Tax recovered from any person, which has not been refunded under Section 36, and is shown to be still at this credit in the Excess Profits Tax Account kept under Section 39 shall on application be repayable to such person or his legal representative after deducting the expenses allowed under Section 41 and twenty per cent of the Excess Profits Tax, upon the expiration of twelve months after the date of the termination of the present war or of twenty-four months after the date of recovery, whichever is the later date. The twenty per cent deducted as aforesaid shall upon such repayment be credited to Government.
43. An application for repayment shall be made by the person entitled to such repayment within six months of the date on which any amount claimed by him becomes due to be repaid.
44. If no application for repayment is made within the time limit fixed under Section 43, or where an application has been made but the amount due is not returned due to the laches of the applicant within one year of the date of such application, it shall lapse to Government. '
The other sections of the Jaipur Act having a bearing on the matter are Sections 36 and 37. The relevant parts of Sections 36 and 37 are as under:
' 36. (1) If any individual, Hindu undivided family, company, local authority, firm or other association of persons, or any partner of a firm or member of an association individually satisfies the Excess Profits Tax Officer or other authority appointed by the 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 chargeable accounting period exceeds the amount with which he is properly chargeable under this Act for that chargeable accounting period he shall be entitled to a refund of any such excess.
(2) The Commissioner in the exercise of his appellate powers/his revisional powers, if satisfied to the like effect, shall cause a refund to be made by the Excess Profits Tax Officer of any amount found to have been wrongly paid or paid in excess.
(3) X X X X(4) X X X X37. Where under any of the provisions of this Act, a refund is found to be due to any person, the Excess Profits Tax Officer or Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded, or any part of that amount against the tax, if any, remaining payable by the person to whom the refund is due.'
4. The appellants claimed a refund of Rs. 2,352 out of the payment of Rs. 5,881-8-0 made on 7th May, 1948. Two facts, which have not been disputed, are (1) The last date for applying for refund of the said amount under Section 43 read with Sections 42 and 44 was 7th May, 1950, and (2) No rules had been framed regulating the refund of amounts due to assessees as contemplated by Section 41 of the Jaipur Act.
5. The appellants applied for refund on 18th December, 1951; and on 9th July, 1953, their Advocate received a communication front the Assistant Secretary to the Government of Rajasthan, Finance Department, saying that, since the appellants' application was made beyond time, the amount had, by virtue of Section 44 of the said Act, lapsed to the Government and could not be refunded. The appellant moved a writ petition under Article 226 in the Rajasthan High Court at Jaipur in 1954, but was withdrawn, obviously, in view of a suggestion coming forth from the opposite side that the Commissioner of Income-tax was the competent authority to deal with the matter after enactment of the Finance Act, 1950, and he had not been made a party. The appellants again filed a writ petition under Article 226 in Rajasthan High Court, which was dismissed on 11th October, 1957, on the ground that the Rajasthan High Court had no territorial jurisdiction to issue a writ on the Commissioner of Income tax. On 17th December, 1957, the appellant moved an application under Articles 132 and 133 for a certificate for appeal to the Supreme Court, which was dismissed on 3rd February, 1959. No application for special leave to appeal under Article 136 was, however, moved in the Supreme Court.
6. While issuing notice on the writ petition filed in this Court, the following order was passed on the 7lh May, 1959 :
' The learned counsel does not press the petition relating to Rs. 3,066-9-0 mentioned in para. 7 (a). He confines his case to the amount mentioned in para. 7 (b). Notice.'
Mahajan, J., dismissed the writ petition with the following observations :
' It will appear from this provision that the Jaipur Act was kept alive for certain assessments and the present assessment is one of these, and, therefore, by reason of this provision, the Jaipur Act was kept alive and, therefore, the application for refund had to be made within six months from 7th May, 1950. That being so, it must be held that the application made on the 18th December, 1951, for refund is beyond time. In this view of the matter, I would reject this petition, but as in a welfare State, it will be hard to conceive that the Government would appropriate moneys belonging to its citizens merely by reason of the bar of limitation, it is not a fit case where costs should be awarded to the respondents. ....'
7. The main question that we have been called upon to answer is whether or not the application for refund was barred by time on 18th December, 1951, and, consequently, the amount claimed had lapsed to the Government. The first problem, therefore, to which I have to direct my attention is the scope of Section 13 of the Finance Act, 1950. When United State of Rajasthan came into being in April, 1949, it provided for the continuance of all existing laws till they were repealed or amended by the new State. It cannot, therefore, be disputed that the Jaipur Act continued to be in force in area comprised in the erstwhile Jaipur State. In the relevant covenant also, there was a provision under which the assets and liabilities of the covenanting State, became the assets and liabilities of the new State. I will advert to the effect of the covenant a little later. The fact of the matter, however, is that the Jaipur Act was a law relating to 'income-tax or super-tax or tax on profits of business' within the meaning of Section 13 of the Finance Act, 1950. Section 13 repealed all such laws, except for the purposes of the levy, assessment and collection of income-tax and Super-tax in respect of the period in question. In my opinion, the refund of tax due does not fall under any of the three exceptions, namely, 'levy', 'assessment' and 'collection'. It has been suggested by the Revenue that the term 'collection' embraces both, the collection of tax by the Government and the claim of refund by the assessee. I am afraid, the context does not admit of that construction. A claim to refund cannot be treated as collection of 'income-tax.' Consequently, there was no saving of provisions dealing with the refund of tax. It is pertinent at this stage to point out for completeness that on 26th January, 1950, all rights, liabilities and obligations of the Government of any Indian State corresponding to a State specified in Part B of the First Schedule, 'whether arising out of any contract or otherwise', became the rights, liabilities and obligations of the Government of India, if the purposes for which such rights were acquired or liabilities or obligations incurred before the commencement of the Constitution, were thereafter to be the purposes of the Government of India relating to any of the matters enumerated in the Union List. This result ensued because of the provisions of Article 295(1)(b) of the Constitution. It follows, therefore, that the obligations and liabilities with respect to refund of tax became the obligations and liabilities of the Government of India.
8. It is argued on behalf of the Revenue that the devolution was of the same obligations, etc., as existed on the date of the commencement of the Constitution, and consequently, what devolved on the Government of India was not an indefeasible obligation but an obligation limited by a condition that, in case the claimants did not apply for refund of tax within the time prescribed by the Jaipur Act, the amount would lapse to the Government. The suggestion is that once the period of limitation prescribed for the application for refund expired, the amount vested in the Government of India. It has also been contended that, in any event, the appellants were not possessed of a. right enforceable in a Court of law, because the covenants entered into by the covenanting States, determining the devolution of assets and liabilities, were in the nature of contract between the High contracting parties, and, therefore, not enforceable in a Court of law. So far as the United State of Rajasthan is concerned, I think, they had clearly expressed themselves to abide by all obligations of the covenanting States by continuing the existing laws in force, as mentioned above. Moreover, the clause in the covenant, whereby the United Stale of Rajasthan undertook to honour all liabilities and obligations, provides a valuable evidence showing that the new State assumed the liabilities of the merging Slates. In view of the continuance of the existing laws, in force in the former Rajasthan States, and the covenant entered into by the erstwhile Jaipur State, I am of the opinion that the New State recognised the rights of the subjects of the old States flowing from the old laws and was prepared to undertake the liability that may lie on it in consequence thereof and that the appellants had an enforceable right before 26th January, 1950. After this date, there was no difficulty in the way of the appellants, inasmuch as the appellants got a constitutional right to enforce the obligations and liabilities vesting in the United State of Rajasthan. This is the opinion expressed by the Supreme Court in State of Rajasthan v. Shyam Lal, AIR 1964 SC 1495.
9. The difficulty arises only with respect to the nature of the obligations or liabilities that devolved on the United State of Rajasthan and the Government of India. I am prepared to assume that, the Revenue is right in the contention, that only a defeasible obligation devolved on the United Stale of Rajasthan and the Government of India. Even if that be so, the right of the appellants to claim refund was admittedly alive till 7th May, 1950, but before that date arrived, the Jaipur Act was repealed on 31st March, 1950, by the Finance Act, 1950, and, as I have said earlier, there was no saving of the provisions with respect to the refund of tax. It follows that such provisions died on 31st March, 1950.
10. Under Sections 36 and 37 of the Jaipur Act, the only authority, to whom an application for refund could be made, was the Excess Profits Tax Officer, or any other authority appointed by the Government in this behalf. It has not been shown to us that any other authority had been so appointed. If Sections 36 and 37 stood repealed on 31st March, 1950, the appellants could make no application though they had time to apply till 7th May, 1950. By virtue of Section 36, the appellants were expected to satisfy the Excess Profits Tax Officer or any other authority appointed by the Government about the validity of their claim for refund. The repeal of Section 36 resulted in a situation, whereby the appellants could satisfy no authority to make good their claim for refund. A way out was suggested by the Revenue that by virtue of first proviso to section 13 (1), the Excess Profits Tax Officer after the repeal meant a 'corresponding authority' under the Income-tax Act. There is, however, a difficulty in applying the said proviso in this case. The 'corresponding authority', mentioned in the said proviso, would only mean an authority for the purposes of ' levy, assessment and collection of income-tax and super-tax', for which alone the Jaipur Act was saved. In the result it follows that there was no 'corresponding authority' after 31st March, 1950, for the purposes of applying for refund. The position, therefore, would be that though the appellants could, till 7th May, 1950, apply for refund, there was no authority to whom they could make the application, and, consequently, the obligation imposed on the Government of India under Article 295 of the Constitution became enforceable without the bar of limitation provided in Section 43 of the Jaipur Act. This Section does not provide and could not provide for any limitation with respect to the enforcement of rights or obligations arising by virtue of Article 295 of the Constitution. With utmost respect to the learned Single Judge, I must say that he was in error in coming to the conclusion that the claim of the appellants was time-barred.
11. The learned counsel for the respondents also contended that if by Section 13 of the Finance Act, 1950, the Jaipur Act was completely repealed except for the purposes of levy, assessment and collection of income-tax and super-tax', then on the basis of the decisions of their Lordships of the Supreme Court in Dalmia Dadri Cement Co. Ltd., v. Commissioner of Income-tax, AIR 1958 SC 816 and Union of India v. Gwalior Rayon Mfg. (Wvg.). Co; Ltd., Birlanagar, Gwalior, AIR 1964 SC 1903, it should be held that no right survived to the appellants inasmuch as it was open to the Legislature to abrogate the rights or obligations devolving by virtue of Article 295 of the Constitution, and that is what was precisely done by the Finance Act of 1950. There is, in any opinion no force in this contention. In the two cases before the Supreme Court, the question was whether or not the agreements entered into between the assessees and the erstwhile States, granting certain exemptions to the assessees, were enforceable after the Finance Act, 1950, came into force, either as contracts or as special laws, and the Supreme Court decided that irrespective of the nature of those contracts, they stood repealed by the Finance Act, 1950. In Dalmia Dadri case, AIR 1958 SC 816, it was decided that the new State had not assumed the obligations of the erstwhile Jind State and, therefore, the subjects of Jind State did not carry with them their rights on the formation of the new State with the result that, for the period covered by Patiala Income-tax Act, which was introduced in the entire territory of the new State, that Act alone governed the rights and liabilities of the subjects of the old State. Article 295 did not; in the opinion of the Supreme Court arise for consideration as the rights had come to an end before the enactment of the Constitution. In the other case, the assessees' claim was that even in respect of the period covered by the Finance Act, 1950, they were liable to be taxed only in accordance with the agreement. This claim was repelled on the ground that the rights stood abrogated by the Finance Act, 1950. The position in the instant case is different, for no law has been made abrogating any obligations devolving under Article 295 with respect to the assessment years in question.
12. Yet another point raised on behalf of the respondents is that the writ petition should be dismissed on the ground of delay. In my opinion, the delay has been sufficiently explained in the writ petition, which shows that the appellants were bona fide following up the matter in the Rajasthan High Court. In any case, I am not inclined to throw out the petition on this ground in the circumstances of this case.
13. In the result, this appeal must be allowed, and a direction in the nature of mandamus issued on the respondents to carry out their obligations and refund the sum of Rs. 2,352 to the appellants. Having regard, however, to the circumstances of the case. I leave the parties to bear their own costs.
S.S. Dulat, J.
14. I agree.