1. This Reference reflects another fact of the many-sided question which has arisen regarding the assessment of Indian citizens on income derived from agricultural lands which have fallen to Pakistan.
2. The assessee is one Rai Budhindra Nath Choudhury and the assessment year concerned is 1948-49. The relative accounting year is 1354 B. S. which corresponds to the period commencing on 15-4-1947 and ending on 13-4-1948. The original assessee was the late Rai Jatindra Nath Choudhury who died after filing a return of his income on 20-4-1949. Thereafter, the assessee on record was substituted as his heir and legal representative and the assessment proceeding wag continued as against him.
3. We are concerned in this Reference with income derived by the assessee from only one source. He owns fairly extensive zemindary properties situated in an area which now appertains to the Dominion of Pakistan. During the accounting year, he derived some income from those zemindary properties and the amount attributable to the period commencing on 15-8-1947, and end-lag on 13-4-1948, has been estimated to be Rs. 41,619/-. There is no dispute about the quantum of that income. The amount, however, represent-ed gross receipts & out of it the Income-tax Officer estimated Rs. 35,000/- as the taxable income. He next allowed a deduction of Rs. 4500/- as the statutory allowance to which the assessee was entitled and determined the assessable income at Rs. 30,500/-.
4. The assessee objected to this assessment on three grounds He contended that the amendment of the definition of 'agricultural income', made by the India (Adaptation of income-tax.Profits Tax and Revenue Recovery Acts) Order, 1947, by which a new meaning was given to the term 'British India' was 'ultra vires', in so far as it was retrospective in operation. It was contended In the second place that, in any event, the income had been derived from land which was subject to a local rate assessed and collected by officers of the Crown within the meaning of the definition of 'agricultural income,' inasmuch as the officers of the Dominion of Pakistan who assessed and collected the local rate levied on the lands were officers of the Crown, although they might not be officers holding office in the Dominion of India. It was contended lastly that by virtue of the provisions of the Agreement for Avoidance of Double Taxation in India and Pakistan, 1947, particularly item No. 9 of the Schedule thereto, the whole of the income concerned was assessable in Pakistan and no part of it was assessable in India. These contentions were successively repelled by the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal. Thereafter the assessee sought a Reference to this Court and obtained the present Reference.
5. The questions which have been referred are the following :
(1) 'Whether on the facts and in the circumstances above set out, the sum of Rs. 30,500/- was agricultural income of the assessee exempt from tax under Section 4(3)(viii) of the Indian Income-tax Act, 1922?'
(2) 'Whether the sum above mentioned is not assessable by virtue of the Agreement lor the Avoidance of Double Taxation of Income between the Government of the Dominion of India and the Government of the Dominion of Pakistan entered into by the Indian Government in exercise of the powers conferred on it by Section 49AA of the Indian Income-tax Act, 1922?'
6. Mr. Pal, who appeared on behalf of the assessee, narrowed down the scope of the decision on the Reference considerably by making two concessions at the very commencement of his argument. He informed us that he no longer wished to contend that the income concerned was entitled to be regarded as agricultural income in India on the ground that a local rate had been assessed on and collected from it by officers of the Domision of Pakistan. He stated further that he did not wish to press the second of the questions. In my view, these concessions were properly made. The subject-matter of the first is concluded by authority and indeed the contention is barred by plain reason. So far as the second is concerned, the question proceeds on a misreading of the provisions of the Agreement for the avoidance of Double Taxation which is not only limited to income taxable in both the Dominions, but also does not provide that any income assessable by the laws of one of the Dominions shall not be assessed there. All that it provides for is an abatement.
7. The only question which remains to be examined is the question of the power of the Governor-General to amend the definition of 'agricultural income' with retrospective effect, as made by the India (Adaptation of Income-tax, Profits Tax and Revenue Recovery Acts) Order, 1947. It will be noticed that if the contention of the assessee merely be, as it appears to have been before the authorities below, that the Governor-GeneraI could not make the amendment with retrospective operation, the whole of the income under examination in the present case would not be freed from the liability to assessment. Even if the argument succeeded, it would operate only on income received earlier than 10-12-1947, when the Adaptation Order was made, because it does not appear tohave been contended before the authorities below that the Governor General could not amend the definition even prospectively.
7A. Before us, however, Mr. Pal was forced to admit that if his first contention was correct, he would be bound to go the length of saying that the Governor-General had no power at the date of the Adaptation Order of 10-12-1947, to amend the definition of 'agricultural income' in the Income-tax Act, either prospectively or retrospectively. His argument was presented to us in two branches which I may proceed to examine.
8. It will be convenient to refer first to the legislative provisions on which the argument is founded. The first enactment to which reference is necessary is the Indian Independence Act, 1947, which came into force on the 18th' of July of that year. Section 9(1) of that Act empowers the Governor-General to make provision by means of Orders passed by him as to various masters and Clause (d) of the sub-section authorises him to make provision by order
'for removing difficulties arising in connection with the transition to the provisions of this Act.' Adaptation of existing statutes is not specifically mentioned in the section, but it may well be conceded, as indeed it was, that to make suitable adaptations of old Indian laws so as to adjust them to the changed political conditions would be to remove difficulties as to the transition -of the country to the provisions of the Independence Act. Section 9(1)(d), therefore, empowers the Governor-General to make orders for the adaptation of existing Indian statutes. Although the Act came into force on 18-7-1917, Sub-section (3) of Section 9 provides that the section shall be deemed to have had effect as from the third day of June, 1947, which, by the way, was the date on which the British Parliament approved of the plan placed before it by the Government of the day for transferring governmental power to the people of India. Sub-section (3) of Section 9 further provides that
'any order of the Governor-General or any Governor made on or after that date (that is the 3rd of June, 1947) as to any matter shall have effect accordingly, and any order made under this section may be made so as to be retrospective to any date not earlier than the said third day of June.'
There is a proviso added to this provision which is not material for our present purpose.
9. The two provisions of Section 9 of the Independence Act, to which I have referred thus establish that the Governor-General was empowered to make adaptations of existing Indian laws, if he considered the same to be necessary for removing difficulties in the way of applying those laws in the changed circumstances and that he could make orders for such adaptations with retrospective effect, but so as not to extend that effect beyond 3-6-1947.
10. I may now pass on to the first instance of the exercise of this power by the Governor-General. It was made by the India (Adaptation of Existing Indian Laws) Order, 1947. The preamble referred to Section 9(1) of the Act, but it also referred to Sub-section (3) of Section 18 on which an argument was founded by Mr. Pal and about which I shall have to say something later. This Order contained certain directions of a general character as to how the Indian laws, then existing, were to be read and construed in future and the only individual statute which it dealt with by way of adaptation was the General Clauses Act, 1897. One of the general directions contained in this Order is contained in Article 3 which reads as follows :
'As from the appointed day, all existing Indian laws shall, until repealed or altered or amendedby a competent Legislature or other competent authority, in their application to the Dominion of India and any part or parts thereof, be subject to the adaptations directed in this Order.'
As regards adaptations directed in the Order, I need only refer to the directions contained in Article 4(2). That provision reads as follows :
'Without prejudice to the general effect of the preceding paragraph, references in any existing Indian law to 'the whole of British India' (or British India'), to 'Bengal' and to 'the Punjab? shall, except where the reference occurs in a title or preamble or any citation of description of an Act, Ordinance or Regulation and except where the context otherwise requires, be replaced by references to 'all the Provinces of India', to 'West Bengal' and to 'East Punjab', respectively.'
The effect of the direction, so far as the Income-tax Act is concerned, 'inter alia' was that if the expression 'British India' occurred at any place in the Act except in the title or in the preamble or in the citation of another Act, Ordinance or Regulation, it was to be read as 'all the provinces of India,' unless the context otherwise required. For the purpose of the present Reference, it is not necessary to enquire whether any other change in the Income-tax Act was brought about by the first Adaptation Order.
11. The first Adaptation Order I have just referred to, was made on 14-8-1947, which, it will be seen, was on the eve of the Appointed Day, namely, 15-8-1947, when the Partition of the country took place. It appears that a few months later, the Governor-General returned to the task of adapting existing statutes so as to facilitate their application in the changed circumstances and by an order promulgated on 10-12-1947, he dealt with what may compendiously be called the revenue laws of the country. This, it would appear, was the second Adaptation Order and it was termed India (Adaptation of Income-tax, Profits Tax and Revenue Recovery Acts) Order, 1947. Although promulgated on 10-12-1947, it was given retrospective effect and provided by Section 1(2) that it was to be deemed 'to have effect from the fifteenth day of August, 1947.' The Schedule to the order covers four taxing statutes of which the Indian Income-tax Act is the first. The second of the amendments or adaptations directed to be made in the Income-tax Act was as follows :
'Section 2. -- After Clause (3), insert :
(3A) 'British India' means, as respects any period before the 15th day of August, 1947, the territories then referred to as British India but including Berar and as respects any period after the 14th day of August, 1947, the territories for the time being comprised in the Provinces of India.'
It will be noticed that the object of the adoptation was to bring the provisions of the Income-tax Act as regards its territorial application into conformity with reality. The adaptation made was not made with any particular reference to the definition of 'agricultural income', but it applied to the definition since the definition contained the expression 'British India.' Since the Indian Income-tax Act is an Act passed by the Indian Legislature and can operate only within the territories in respect of which that Legislature can make laws and in which only those laws can operate, it was obviously necessary to provide that so far as the period prior to the Partition was concerned, the meaning of the term 'British India', as it was contemporaneously known, would continue to hold good, but so far as the period subsequent to the Petition was concerned, 'British India' would have to be understood as comprising only the territories constituting the Provinces of post-Partition India. I maypause here to point out that, in effect, the result of this adaptation is not different from what was directed by the first Adaptation Order in regard to the expression 'British India.' That Order, it will be recalled, directed that except where the context otherwise required and except when the expression occurred in certain specified portions of an existing Indian law, the expression 'British India' was to be replaced by the expression 'all the Provinces of India', it appears to me that the adaptation is also an instance of the application of the general principle laid down in Article 4(1) of the first Adaptation Order which says that where a reference to the territorial application was contained in any Act, such reference was to be read as excluding any territories which, on the Appointed Day, were not to form part of the territories of the Dominion of India. I must hasten to add, however, that neither Article 4(1), nor Article 4(2) of the first Adaptation Order would apply in terms to the expression 'British India' as occurring in the definition, of 'agricultural income'' in the Income-tax Act.
12. There are two other statutory provisions to which I must refer before I take up Mr. Pal's argument. Both of them are provisions contained in the Indian Independence Act. The first of them is Section 18(3) which reads as follows :
'Save as otherwise expressly provided in this Act, the law of British India and of the several parts thereof existing immediately before the appointed day shall, so far as applicable and with the necessary adaptations, continue as the law of each of the new Dominions and the several parts thereof until other provision is made by laws of the Legislature of the Dominion in question or by any other Legislature or other authority having power in that behalf.'
The other provision is contained in Section 19(5) which reads thus :
'Any power conferred by this Act to make any order includes power to revoke or vary any order previously made in the exercise of that power.'
13. The first branch of Mr. Pal's argument was along the following liaes. He conceded that Section 9(1) of the Independence Act, when it authorised the Governor-General to make provision for removing difficulties arising in connection with the transition to the provisions of the Act by means of orders passed by him, conferred power on him to adapt existing Indian laws. He also conceded that by virtue of the provisions of Sub-section (5) of Section 19 which is the interpretation section, the Governor-General might revoke an order passed by him under Section 9(1)(d), or vary such an order.-' What he contended, however, was that the power conferred by Section 9(1)(d) was intended to be exercised only once and that after the Governor-General had made use of that power with reference to a particular existing law and made an adaptation of it, the power would be exhausted. The point in that contention was that the Indian Income-tax Act had been adapted by the Governor-General by the first Adaptation Order of 14-8-1947 and, consequently, the second Adaptation Order made on 10-12-1947, by which the same Act was adapted a second time, was in excess of the authority conferred by Section 9(1) (d) end therefore 'ultra vires' the powers of the Governor-General. If Mr. Pal succeeded in that contention, the dentition of 'Agricultural in-come' contiuned in Section 2(1) of the Income-tax Act and the expression 'British India' occurring therein would continue to remain unaffected, inasmuch as the same had not been touched by the first Adaptation Order and if they continued to remain unaffected, the definition in its unamended form would be applicable to the assessment of his client for the assessment year in question.
14. In support of the contention that Section 9(1) (d) contemplated only a single exercise of the power conferred by the sub-section, Mr. Pal referred to the provisions of Section 18(3) of the Act as also those of Article 3 of the first Adaptation Order. As to the latter provision, his argument was that since it, directed that all existing Indian laws would, until repealed or altered or amended, be subject to the adaptations specified in the Order, its effect was that but for the adaptations so specified, the existing Indian laws were adopted as the laws of the new Dominion and were directed to continue as such. The argument, as far as I could understand Mr. Pal, was that the Governor-General having once declared by Article 3 of the first Adaptation Order that the existing Indian laws would continue to be the law of the new 'Dominion, subject only to the adaptation which that Order directed, there could be no question of making any further adaptations. Somewhat similar' was his contention based upon Section 18(3) of the Act, for with reference to that provision also he argued that since the pre-existing laws of British India had been directed to continue as the laws of the new Dominion of India with the 'necessary adaptations', only such adaptations as were consequential were contemplated and there could be no, if I may use the expression, positive or affirmative adaptations.
15. In my view, the contention of Mr. Pal is plainly untenable. With reference to Article 3 of the first Adaptation Order, it is only necessary to point out that it does not anywhere say that all existing Indian laws would continue for all time to be the laws of the new Dominion, subject only to such adaptations as were made by the Order. All that the Article means is that on and from the date of the Order, the adaptations directed thereby shall be deemed to be the parts of the respective Acts affected by them. There is no provision, directed or implied, that no further adaptations could be made in future or that the Governor-General was anally adopting the pre-existing Indian laws except so far as they were being adapted by him as the laws of the new Dominion. So far as Section 13(3) of the Act is concerned Mr. Pal's difficulties are even greater as he himself very fairly conceded in the end. The sub-section does not say anything more tban that the law of British India shall, so far as applicable and with the necessary adaptations, continue to be the law of each of the new Dominions. There is no reason to limit the expression 'necessary adaptations' to adaptations which were merely consequential to the political changes made and to the new designations of various territories or authorities. The expression clearly covers both consequential adaptations and adaptations that might be made from time to time. It is to my mind perfectly clear that Sub-section (3) of Section 18 is a provision of a general character, not conferring any power on any one, nor directing any particular state of things to continue for all time, but merely providing for the continuance of the pre-existing laws, so far as they might be applicable with such adaptations as were consequential and such further adaptations as might be found necessary as and when such adaptations were made. As I have said. Mr. Pal conceded in the end that he could not contend that by the term 'necessary adaptations', Section 18(3) contemplated only such adaptations as were consequential. I see nothing in either of the two provisions relied on by Mr. Pal which could induce me to come to the conclusion that Section 9(1)(d) or, for the matter of that, any of the other clauses of that sub-sections contemplated only a single exercise of the power thereby conferred. Such a provision would be in the nature of things inappropriate and there is no reason whatever, either in the language ofthe Act or in the situation it was dealing with to attribute to the British. Parliament an intention of so unpractical a kind. A tremendous political change was coming over India and the Governor-General, charged with piloting the transition of the country from one political status to another, was being clothed with power to make all orders that might be found necessary for the discharge of the task entrusted to him and for bringing about the required changes. It would be strange and plainly inappropriate it, in putting the Governor-General in charge of effecting the transition, the Parliament were to limit him to an exercise of each of the various powers conferred on him on a single occasion only. In my view, the Parliament has done no such thing and the first branch of Mr. Pal's argument must fail I may pause here to point out, that it Mr. Pal was right in his first contention, there would be no reason to limit the disability of the Governor-General to his making a second adaptation with retrospective effect. If the Independence Act empowered him to exercise his power only once and therefore to make an adaptation of an existing Indian Act only on a single occasion, he could not obviously do so a second time, whether protectively or retrospectively. But as I have already held, for the reasons I have given, the Governor-General cannot be held to have been limited to a single exercise of his powers.
16. The second branch of Mr. Pal's argument was along the following Sines. He contended that the power to make an order with retrospective effect conferred by G. 9(3) of the Independence Act was limited to the first, and the original order which the Governor-General might make in exercise of his powers under Sub-section (1). It was not intended to apply to any further order which he might make. The next step of the reasoning was that once the Governor-General had made an order by way of adapting a particular existing law, he could next make an order with reference to that Act only by way of revoking his earlier order or varying it. The first Adaptation Order, it was said, fell into two parts, one, constituted of Article 1(2) which declared the date of its commencement and the other, constituted of the substantive provisions of the Order. It was contended that by the second Adaptation Order, the Governor-General had neither revoked, nor varied the provision of Article 1(2) of the first Order, nor had he revoked or varied the substantive provision so far as it affect-ed the Income-tax Act or if he had varied it at all, the order had already been varied so that there could be no question of varying it again.
17. It was somewhat difficult to follow Mr. Pal in this argument, and as it transpired in theend. he himself was labouring under a certain misapprehension. But the argument may be examined. How Mr. Pal spelt out of Section 9(3) of the Independence Act any intention that the power to give retrospective effect to any order made by the Governor-General was limited to the first or original order made by him, was not clear to me. All that I could obtain from Mr. Pal by way of elucidation was that if the power was intended to extend also to subsequent orders by way of variation or revocation, one might expect Section 19(5) to be made a part of Section 9 and not to have been given an independent place. The argument. I think was that since Section 9 spoke only of making orders, but did not in itself speak of making orders, revoking or varying earlier order the whole of Section 9, including Sub-section (3), was LIMITED to original orders and thereforethe provision for giving retrospective effect couldnot apply to any order not contemplated by Section 9 itself. In that view, Section 19(5) was to be read asstanding by itself and not attracting to it the provisions of Section 9(3).
18. It does not appear to me that the second branch of Mr. Pal's argument is any more tenabla than his first part. As regards the contention that the position of Section 19 (5) in the Act indicates that the power of giving retrospective operation to orders made by the Governor-General could not be extended to orders revoking or varying earlier orders, it is only necessary to point out that Section 19 is an interpretation section and its provisions apply to all other provisions of the Act. Section 19 (5) itself says that any power conferred by this Act to make any order includes power to revoke or vary any order previously made in exercise of that power it would follow at once that any power conferred by Section 9(1) to make an order would include a power to revoke or vary an earlier order or, in other words, the orders contemplated by S 9 comprised both original orders and orders by way of revocation or variation subsequently made. If so, an order revoking or varying an earlier order is also an order under Section 9(1) and, consequently, the provisions of Sub-section (3) would clearly apply.
19. I may now proceed, to examine the second reason given by Mr. Pal in aid of the second branch of his argument. Before I examine the second Adaptation Order and see whether it revoked or varied the earlier order, I may point out that the first Order did not touch the expression 'British India,' as occurring in the definition of 'agricultural income'. It is true that Article 4(2) of that Order directed the expression 'British India' to be replaced by 'all the Provinces of India' in all existing Indian laws except when occurring at certain places, but Mr. Pal himself conceded that there was a further limitation which was 'unless the cont-ext otherwise required' and that the context did require that the expression 'British India' in the definition of 'agricultural income' could not possibly be read as 'all the Provinces of India' without leading to a ridiculous result. If so, despite the first Adaptation Order, the expression 'British India', as occurring in the definition of 'agricultural income in the Income-tax Act, remained unaffected or, in other words, it continued to be 'British India.' If that was so, I do not see, unless Mr. Pal's first argument was correct and unless the Governor-General was debarred from making a second Adaptation Order, how there could be any obstacle to his dealing with the expression 'British India' by means of a second Order of an original character. The first Adaptation Order not having touched the expression 'British India' in the definition of 'agricultural income' at all, it was what I may describe as an unoccupied field and there was no bar to the Governor-General coming forward to occupy it by means of a second Order. No question of revoking or varying an earlier Order therefore arises.
20. But assuming that such a question is involved. I may proceed to examine how Mr. Pal'3 contention works. He submitted that by the second Adaptation Order, no part of the earlier Order was revoked. If the term 'British India', as occurring in the definition of 'agricultural income' remained unaffected after the promulgation of the first, Order, I am prepared to concede that by the second Order, no part, of the earlier Order so far as it concerned the definition of 'agricultural income', was revolted. But there is a provision in the second Adaptation Order which does seem to suggest that the Governor General intended to revoke such part of the curlier Order, if any, as might be found to be in conflict with the later, Order. Article 3 ol' the Adaptation Order of 30-13-1947, says that :
'the provisions of this Order shall have effect notwithstanding anything to the contrary contained in the India (Adaptation of Existing Indian Laws) Order. 1947'.
Obviously, the Article proceeds on the footing that there is some conflict between the earlier and the later Order and to the extent that the former Order may be inconsistent with the latter, it is directed that the latter shall prevail. There is in this provision, to my mind, an implied revocation and if any revocation was needed as a justification of the second Adaptation Order, I think such revocation can be found in Article 3. Mr. Palcontended that there could not be any revocation except revocation of the whole and pointed out that the whole of the earlier Order had by no means been revoked. I am unable to agree with him that a later Order or enactment, when it overrides an earlier Order or enactment in part, cannot be said to have revoked the earlier provision to that extent. But assuming, as Mr. Pal would have us hold, that there was no revocation, I am unable to see why there was not some variation of the earlier Order. According to Mr. Pal himself, the earlier Order made certain changes in the Income-tax Act and left the rest of the Act untouched. To adopt his own language, 'British India' remained equal to 'British India' and theexpression continued to survive in its original form even after the promulgation of the first Order. If the effect of the first Adaptation Order was to make only some changes in the Income-tax Act and, as Mr. Pal himself contended, to declare that the rest of the Act would continue to be the law of the Dominion as it was, then, when the second Order directed certain further changes to be made, I am unable to see how it can be said that the earlier Order was not varied. Mr. Pal's reply was that the earlier Order had already been varied and that therefore there could not be a second Variation. He was, however, quick to admit that the earlier Order had only varied the Income-tax Act but had not itself been varied by any Order at all and could not have varied itself and, therefore, no question of a double variation arose. It is only fair to Mr. Pal to add that, in the end, he conceded that even if he was right in contending that a second Order could only be an order of revocation or variation and even if no revocation had been made by the second Order, there had been at least a variation of the earlier Order and such variation was within the powers of the Governor-General, as contemplated by Section 19(5) of the Act. The second branch of Mr. Pal's argument must also, therefore, fail.
21. For the reasons given above, we must hold that the adaptation made of the meaning of the expression 'British India' in the definition of 'agricultural income' by the Adaptation Order of 10-12-1947 was not 'ultra vires' the powers of the Governor-General.
22. In the result, we answer the questions referred in the manner following :
Question (1) : 'No'.
Question (2) : 'Not pressed.'
23. The Commissioner of Income-Tax, West Bengal, will have his costs of this Reference.
24. I agree.