1. The Madras Motor Vehicles (Taxation of Passengers and Goods) Act, 1952 (hereinafter referred to as 'Madras Act 16 of 1952'), levied a tax, among others, on bus operators. It has calculated at a certain percentage on the fares and freights charged by bus operators on their passengers. Originally this tax was levied at the rate of 5 paise in the rupee on the fares and freights payable by the passengers.
2. Madras Act 16 of 1952 was adopted in Andhra Pradesh. In 1959, the Andhra Pradesh Legislature passed an Amending Act, Act 21 of 1959, under which the tax on but operators was raised from 5 paise to 20 paise. The rise in rate came into effect on May 8, 1959. Some of the bus operators affected by the rise in the rate of tax filed writ petitions in the Andhra Pradesh High Court. They impugned the validity of the Act on the score that the Legislature had not obtained the previous sanction of the President for that measure. Accepting this plea, the Andhra Pradesh High Court struck down this Act as void. This judgment was rendered on January 17, 1961.
3. Some time later, the Andhra Legislature enacted Act 34 of 1961. This Act came into force on October 31, 1961. Under this Act, the tax on bus operators was rescheduled. This was done for two purposes : (1) to naturalize the effect of the High Court's judgment dated May 8, 1959, and (2) to maintain the parity between those who had paid the tax at the higher rate of 20 paise under the invalid legislation and those who had protested against it and did not pay it. The rates, as rescheduled, took note of three date-lines : May 8, 1959, when the previous Act 21 of 1959 came into force; January 17, 1961, when the High Court struck it down; and October 31, 1961, when Act 34 of 1961 came into force. The rescheduled rated of tax were as under :
5 paise up to May 8, 1959.
20 paise from May 8, 1959, to January 16, 1961.
5 paise from January 17, 1961, to October 31, 1961.
15 paise from November 1, 1961, onwards.
4. The rates, as above, were imposed by s. 3 of the Act 34 of 1961. Section 8 of the Act validated all levies already made between January 17, 1961, and October 31, 1961. It is needless to say that the question of validation arises only in cases where tax under the invalid Act 21 of 1959 had already been paid. For those who had not paid anything under Act 21 of 1959, the charging provision in s. 3 alone would apply. This provision, although covering the period from May 8, 1959, onwards, came into force only on October 31, 1961.
5. The assessee figuring in this reference is bus operator who is liable to pay motor vehicles tax to the Andhra State. He, however, defied the increase in the tax rate as effected by Act 21 of 1959, but not for long. He knew that with the passage of the Act 34 of 1961, he could no longer resist the liability. The motor vehicles tax authorities came with a notice of demand dated November 7, 1962, for Rs. 3,43,949 relating to the period May 8, 1959, to October 31, 1961. This demand pertained to three account years of the assessee, namely, years ended March 31, 1960, March 31, 1961, and March 31, 1962. However, even prior to the notice of demand, while closing his accounts for the year ended March 31, 1962, the assessee made a provision for motor vehicles tax under the Act 34 of 1961 at the enhanced rates. The provision amounted to Rs. 3,43,949. In the assessment for the relevant assessment year 1962-63, the assessee claimed deduction for Rs. 3,43,949 as a proper charge against profits.
6. The ITO viewed the provision as excessive. According to him, it appertained not only to the relevant account year ended March 31, 1962, but also to the two earlier account years ended March 31, 1960, and March 31, 1961. According to the officer, the assessee was not entitled to make a provision for tax which related to the earlier two years. In the absence of correct figures, the officer estimated one-third part of Rs. 3,43,949 as a provision relevant to the current account year ended March 31, 1962. He granted a deduction for this amount and rejected the balance of two-thirds as not relating to this year.
7. In the appeal, the AAC upheld the assessee's claim for deducting in this year, the entire provision of Rs. 3,43,949. He accordingly, directed the officer to allow the balance of the provision for motor vehicles tax amounting to Rs. 2,29,300. The Tribunal upheld this order while disposing of a Departmental appeal.
8. In this reference brought at the instance of the Department, the following question of law has been referred to this court for decision :
'Whether, on the facts and in circumstances of the case, the Tribunal was right in holding that the sum of Rs. 2,29,300 being the additional surcharge payable under the Motor Vehicles Act for the earlier assessment year is an admissible deduction for the assessment year 1962-63 ?'
9. The reference in the question to the 'additional surcharge' is obviously to the enhanced tax payable under the Amending and Validation Act 34 of 1961.
10. There is no dispute before us as to the assessee's right to claim a deduction in regard to a provision for taxation. But the argument for the Department was that a provision can properly be made only with reference to a liability which appertains to the particular year concerned. The motor vehicles tax, it was said, is a yearly tax, and, therefore, a provision in any given year must stick to the liability for that year and no more.
11. We agree with the principle of this argument. But the question is : Did the motor vehicles tax relating to the earlier two years accrue due during those years For an answer to this question, we must turn to the history of the legislation in Andhra Pradesh relating to the enhancement of the motor vehicles tax, a history which we have briefly set out at the beginning of this judgment. The unfolding of legislation as well as judicial review, as matter of history, shows that once Act 21 of 1959 was struck down, there was no valid legislation for levy of motor vehicles tax at 20 paise. Such a levy came into being only when Act 34 of 1961 became law, which was on October 31, 1961. The question of accrual of tax liability would arise only during a period when the tax liability exists, not when it does not exist. Again, the differential rates at which the motor vehicles tax was rescheduled came into force only on October 31, 1961. The liability at the rate of 20 paise, no doubt, was imposed retrospectively from May 8, 1959. But to impose tax retrospectively only means that the tax covers years which are already past. It does not and cannot require taxpayers to be wise before the event. Taxpayers can come to know of a retrospective tax only in the same way as they come to know of prospective tax, on the Act being passed here and now. No law expects taxpayers, who are ordinary mortals, to have hindsight. There can, therefore, be no question of anyone providing for a tax which does not exist at the moment. We can also look at the matter from another angle. Supposing a taxpayer, by some occult divination, has a vision of taxes to come and makes provision therefor here and now in his profit and loss account; would anyone not so endowed in hindsight accept it as a same provision or as a proper charge against net profits The answer is 'No'.
12. In this case, the provision made by the assess in his accounts towards motor vehicles tax liability, no doubt, covered three account years, but, in the events that happened, it was inevitable. Under s. 3 of Act 34 of 1961, which is the charging section, the rescheduled rates of motor vehicles tax on buses covered the three account years, as under :
----------------------------------------------------------------Year of account Rate of tax----------------------------------------------------------------1-4-1959 to 31-3-1960 20 paise1-4-1960 to 31-3-1961 20 paise up to 16-1-1961and 5 paise from 17-1-1961to 31-3-1961.1-4-1961 to 31-3-1962 From 1-4-1961 to 31-10-1961-5 paiseFrom 1-11-1961 to 31-3-1962-15 paise
13. As we indicated earlier, the statutory warrant for the charge to tax for all these years is to be found only in s. 3 of Act 34 of 1961, which was passed on October 31, 1961, during the assessee's account year ended March 31, 1961. The assessee was, therefore, justified in making a provision for motor vehicles tax liability only in that year. Even the taxing authorities did not and could not send the appropriate notices of demand for each year's tax in the respective year. As it turned out, they sent a demand notice only for the consolidated amount of Rs. 3,43,949 and, that too, only on November 7, 1962, in the following account year ended March 31, 1963. This is because the one and only valid source of authority for their notice of demand was s. 3 of the Act 34 of 1961 which came to be passed only on October 31, 1961. The assessee also was similarly placed. For him too, the tax liability, although for earlier periods, became a liability only on October 31, 1961. The assessee was, therefore, right in making a provision for the additional motor vehicles tax liability of Rs. 3,43,949 representing the excess tax over the amount leviable at the rate of 5 paise.
14. We have so far avoided going into the details of the Tribunal's order, but we must say their conclusion accords with ours. There is also an observation of the Tribunal which accords with our line of reasoning and that observation reads thus : 'legally enforceable liability to pay additional surcharge arose only when the Amendment and Validating Act 34 of 1961 came into operation.' For the rest, however, the Tribunal's order is a web of confusion. For instance, having made the observation we have quoted above, the Tribunal proceeded to remark that 'accrual of liability cannot be given a retrospective effect by a validating legislation.' This remark makes us wonder whether the propounding of the earlier observation can ascribed to any cogent piece of reasoning by the Tribunal. The confusion in the Tribunal's though process lies in not being able to distinguish between legislation validating an earlier tax levy, and legislation imposing a fresh tax levy. Validation presupposes a previously completed assessment, demand and payment under a pre-existing tax levy. Only all these steps are illegal, because the levy itself is void. Validation becomes necessary not to create a new charge, but to continue to enjoy the fruits of an old, invalid charge. In contrast, a provision in a taxing enactment which creates a charge to tax retrospective, nevertheless creates it here and now. It validates nothing, because before it comes into being, there is nothing which operates in its field. In Act 34 of 1961, both validation and retrospective tax legislation are combined. But that is no reason for confusing the one with the other.
15. In Shri Prithvi Cotton Mills V. Broach Borough Municipality : 79ITR136(SC) , the Supreme Court had occasion to deal with the effect of validation legislation after an earlier taxation statute was declared by the court to be invalid. The Supreme Court observed that validation of tax may be done in more ways than one. They gave three illustration : (i) The legislature may provide for jurisdiction where jurisdiction has not been properly invested before; (ii) The legislature may re-enact retrospectively a valid and legal taxing provision and then by fiction make the tax already collected to stand under the re-enact law; and (iii) The legislature may give its own meaning and interpretation of the law under which the tax was collected, and by legislative fiat make the new meaning binding on courts. The Supreme Court observed that the legislature may follow any one method or all of them and, while it does so, it may neutralize the effect of the earlier decision of the court which becomes ineffective after the change of the law.
16. The pattern of Andhra Act 34 of 1961 would seem to follow the second the examples given by the Supreme Court as to the nature and scheme of a combined validation and amending legislation. The provision for taxation for which the assessee has claimed deduction has to do with that part of the Act 34 of 1961 which has laid the charge retrospectively; it has nothing to do with the other part of the statute which has validated the earlier collection under the invalid Act 21 of 1959. In this case, the assessee had not been subjected to tax at all under Act 21 of 1959. Ex-hypothesis, therefore, the validating provision does not apply. It is according ideal for us to go into the question of the effect of the validation provision in s. 8 of Act No. 34 of 1961.
17. We have reached our conclusion in this reference on the basis of an analysis of the provisions of the Act 34 of 1961 and the manner in which the Act lays and effectuates the charge under s. 3. Quite a number of reported cases were cited to us. But since they related to big constitutional questions which do not really arise in this case, we have laid them aside.
18. For the reasons which we have earlier set out, our answer to the question of law is against the Department and in favour of the assessee. The Department will pay the assessee's costs. Counsel's fee Rs. 500.