Satyanarayana Raju, J.
1. This appeal, by special leave, against the judgment and order of theKerala High Court, dated July 25, 1963 in Income-tax Referred Case No. 10 of1962 (Agricultural), raises the question as to the true scope and operation ofs. 2 of the Kerala Surcharge on Taxes Act, 1957 (Ker. Act XI of 1957),hereinafter called the Surcharge Act.
2. The facts which have given rise to this appeal may be briefly stated. Forthe assessment year 1957-58, the appellant company was assessed to agriculturalincome-tax under the Kerala Agricultural Income-tax Act, 1950. In theassessment, a surcharge at the rate of 5% on the agricultural income-tax andsuper tax was also levied and collected from the appellant under the provisionsof the Surcharge Act.
3. The appellant appealed to the Deputy Commissioner of AgriculturalIncome-tax and Sales Tax, South Zone, Quilon, objecting to the imposition ofsurcharge on the ground that the law applicable to assessment for 1957-58 underthe provisions of the Agricultural Income-tax Act was the law in force on April1, 1957 and as the Surcharge Act which came into force only from September 1,1957 did not have any retrospective effect, the surcharge could not be leviedfor that year. By his order, dated November 14, 1959, the Deputy Commissionerrejected these objections.
4. Thereupon, the appellant preferred a further appeal to the KeralaAgricultural Income-tax Appellate Tribunal, Trivandrum. By its order, datedAugust 2, 1961, the appellate Tribunal upheld the contention of the appellantholding that the Surcharge Act could not have retrospective operation unlessthere was a specific provision therein to that effect.
5. On the application of the respondent, the Tribunal stated a case to theKerala High Court and referred the following question of law :
'Whether any surcharge can be levied on theagricultural income-tax payable for the assessment year 1957-58 ?'
6. By judgment, dated July 25, 1963, the Division Bench of the High Courtanswered the question in the affirmative, against the appellant. The appellantthen applied to this Court and obtained special leave to appeal against thejudgment and order of the High Court.
7. It is contended for the appellant, by Mr.Setalvad, learned counsel, thatthe Surcharge Act having come into force on September 1, 1957 and the said Actnot being retrospective in operation, it could not be regarded as law in forceat the commencement of the year of assessment viz. 1957-58. It is alsocontended that in the absence of express enactment or necessary intendment, theprovisions of the statute which affect a right in existence at the time of thepassing of that enactment are not to be applied retrospective and that theinterpretation placed by the High Court on the scope of sub-s. (3) off s. 1 ofthe Surcharge Act is erroneous.
8. Before dealing with these contentions, it would be convenient to read thematerial provision of the Surcharge Act. Sub-section (3) of s. 1 reads :
'It shall come into force on such date as theGovernment may, by notification in the Gazette, appoint.'
9. By a notification, dated August 27, 1957, the Government of Keralaappointed the first day of September 1957 as the date on which the said Actshall come into force. By a further notification dated November 28, 1957, theGovernment of Kerala, in exercise of the powers conferred on it by s. 6 of thatAct notified that surcharge shall not be levied on assessments on the turnoveror income of the year 1956-57 onwards but that it shall be confined only toassessments made on or after September 1, 1957 and that where the turnover orincome for periods prior to 1956-57 is pending assessment. surcharge shall notbe levied on such assessments when made. We are not now called upon todetermine the validity of these regulations.
10. Now, it is well-settled that the Income-tax Act, as it stands amended onthe first day off April of any financial year must apply to the assessments ofthat year. Any amendments in the Act which come into force after the first dayof April of a financial year, would not apply to the assessment for that year,even if the assessment is actually made after the amendments come into force.
11. In Scindia Steam Navigation Co. Ltd. v. Commr. of Inc. Tax, 24 I.T.R.686 a Division Bench of Bombay High Court, consisting of Chagla C.J., andTendolkar J., considered the question as to the effect of an amendment whichcame into force after the commencement of a financial year. The facts in thatcase were these. The assessee's ship lost as a result of enemy action. TheGovernment paid the assessee in 1944 a certain amount as compensation whichexceeded the original cost of the ship. The Income-tax Officer included thedifference between the original cost and the written down value of the ship inthe total income of the assessee for the assessment year 1946-47. The Tribunalupheld that decision and referred the question, whether the sum representingthe difference between the original cost and the written down value wasproperly included in the assessee's total income computed for the assessmentyear 1946-47. It was argued that the fourth proviso to s. 10(2)(vii) of theIncome-tax Act (inserted by the Amendment Act of 1946 with effect from May 4,1946) under which the inclusion of the amount was justified by the department,had no application to the case.
12. The learned Judges held that as it was the Finance Act of 1946 thatimposed the tax for the assessment year 1946-47, the total income had to becomputed in accordance with the provisions of the Income-tax as on April 1,1946; that as the amendments made by the Amendments Act of 1946 with the effectfrom May 4, 1946 were not retrospective, they could not be taken intoconsideration merely because the assessee was assessed after that date; andthat the assessee was not liable to pay tax on the sum because the fourthproviso s. 10(2)(vii) of the Income-tax Act under which it was sought to betaxed was not in force in respect of the assessment year 1946-47.
13. This Court affirmed this decision in Commissioner of Income-tax, Bombayv. Scindia Steam Navigation Co. Ltd. : 42ITR589(SC) where it was stated at p. 816 as follows :
'On the merits, the appellant had very little tosay. He sought to contend that the proviso though it came into force on May 5,1946, was really intended to operate from April 1, 1946, and he referred us tocertain other enactments as supporting that inference. But we are construingthe proviso. In terms, it is not retrospective, and we cannot import into itsconstruction matters which are ad extra legis, and thereby alter its trueeffect.'
14. In The Commissioner of Sales Tax, Uttar Pradesh v. The Modi Sugar MillsLtd. : 2SCR189 this Court held by a majority as follows :
'A legal fiction must be limited to the purposesfor which it has been created and cannot be extended beyond its legitimatefield. The turnover of the previous year is fictionally made the turnover ofthe year of assessment : it is not the actual or the real turnover of the yearof assessment. By the imposition of a different tariff in the course of the year,the incidence of tax liability may competently be altered by the Legislature,but for effectuating that alteration, the Legislature must devise machinery forenforcing it against the tax payer and if the Legislature has failed to do so,the court cannot resort to a fiction which is not prescribed by the Legislatureand seek to effectuate that alteration by devising machinery not found in thestatute.'
15. In the instant case, there is no escape from the conclusion that theSurcharge Act not being retrospective by express intendment, or necessaryimplication, it cannot be made applicable from April 1, 1957, as the Act cameinto force from September 1, of that year.
16. The High Court has, however, relied upon a decision of this Court in I.T. Commissioner v. I.S. Lines : 20ITR572(SC) where it was held asfollows :
'It will be observed that we are here concernedwith two datum lines : (1) the 1st of April, 1940, when the Act came intoforce, and (2) the 1st of April, 1939, which is the date mentioned in theamended proviso. The first question to be answered is whether these dates areto apply to the accounting year or the year of assessment. They must be held toapply to the assessment year, because in income-tax matters the law to beapplied is the law in force in the assessment year unless otherwise stated orimplied. The first datum line therefore affected only the assessment year of1940-41, because the amendment did not come into force till the 1st of April1940. That means that the old law applied to every assessment year up to andincluding the assessment year 1939-40.'
17. This decision is authority for the proposition that though the subjectof the charge is the income of the previous year, the law to be applied is thatin force in the assessment year, unless otherwise stated or implied. The factsof the said decision are different and distinguishable and the High Court wasclearly in error in applying that decision to the facts of the present case.
18. The Surcharge Act having come into force on September 1, 1957, and thesaid Act not being retrospective in operation, it could not be regarded as lawin force at the commencement of the year of assessment 1957-58. Since theSurcharge Act was not the law in force on April 1, 1957, on surcharge could belevied under the said Act against the appellant in the assessment year 1957-58.
19. In the result, the appeal is allowed with costs.
20. Appeal allowed.