CHAKRAVARTTI, C.J. - This is another case of assessment of agricultural income where the partition of Bengal and the inadequate provision made for the adaptation of the old agricultural income-tax law of the undivided province presented a problem of some complexity. The facts are such that questions far more difficult than the one raised by the taxing authorities might well have arisen, but the question actually raised by them and now referred to us almost answers itself.
The reference is somewhat unusual in from. It comprises two separate cases of two different assessees who are co-shares in respect of some agricultural land situated in what is now East Pakistan. The share of each is one held. As the point involved in their assessments was the same, their appeals to the Tribunal were consolidated and so were their applications for reference to this Court. As a result only one reference has been made and only one statement of case submitted.
The two assessees concerned are one Shri Jiban Krishna Roy and one Shri Butta Krishna Roy. The paper-book includes the assessment order passed in the case of the latter have not been included. I doubt whether that has been proper. However, I may state the facts by reference to the case of Shri Jiban Krishna Roy, as was done in the argument before us.
The accounting year is 1353 B. S., corresponding to April, 1946, to April, 1947, and the relative assessment year is 1947-48. The assessee has agricultural lands situated both in East and West Bengal. The general notice under section 24 (1) of the Bengal Agricultural Income-tax Act calling for a return was issued on the 28th April, 1947, when Bengal was still undivided. The assessee did not file any return in compliance with that notice, nor did the Agricultural Income-tax Officer issue a special notice to him under section 24 (2) of the Act. Sub-sequently, on the 28th May, 1948, which was after the petition, the assessee filed a return voluntarily. In that return, he showed an income of Rs. 7,220-13-0 which was the income derived by him during the accounting year from his lands in West Bengal. The income derived from his lands in West Bengal. The income derived from lands situated in East Bengal was not included. Notices under section 24 (4) and section 25 (2) were served oh the 18th June, 1951, and on the 4th of August of that year the assessment was made. The Agricultural Income-tax of the Assessee, including the same only for the purpose of computing the rate of tax applicable to the West Bengal income. The total agricultural income being thus determined at Rs. 21,273, the rate applicable was found to be 15.97 pies in the rupee. The Agricultural Income-tax Officer might have applied that rate to Rs. 7,851 and determined the tax payable, but what he did was that he first determined the tax payable on the whole of Rs. 21,273 which was Rs. 1,769-4-0, and then he deducted therefrom the tax payable on the East Bengal income which was Rs. 1,116-6-0. The result of that process was the same as what it would have been if the Agricultural Income-tax Officer had directly applied the rate already determined by him to the West Bengal Income. The tax due from the assessee was found to be Rs. 652-14-0.
The assessee objected to the inclusion of his East Bengal income in his assessment for West Bengal, even though it was included only for rate purposes. His objections were overruled. The Agricultural Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal, all held that such inclusion was valid. The assessee than asked for a reference of the disputed question to this Court and the Tribunal, agreeing that it was a question of law, has referred and following question :
'Whether, in the matter of the assessment of the agricultural income, received by the assessee in the accounting year 1353 B. S. (corresponding to April, 1946, to March, 1947) when Bengal was undivided, that part of the said agricultural income which came to appertain to East Pakistan as a result of the partition of Bengal on 15th August, 1947, could be legally or validly taken into consideration for the purpose of computation of the rate of tax for that portion of the said income of the assessees which appertained exclusively to West Bengal, in the assessment year 1947-48.'
It is not clear what the Tribunal mean by the expression 'that part of the said agricultural income which came to appertain to East Pakistan as a result of the partition of Bengal.' They are speaking of income, not the tax payable on it. On the other hand, they are not speaking of land. The income had accrued at a time when Bengal was undivided and not East Pakistan had yet come into existence. If of such income it is said that a part of it came to appertain to East Pakistan as a result of the partition, it can hardly be meant by such language that the effect of the partition was to transfer the right to tax that income to East Pakistan. What is perhaps meant is that by reason of the partition, the land from which a part of the income had been derived came to form a part of the new State of East Pakistan and consequently, as regards its territorial origin, the income came to be connected with that State.
On the merits of the question, the Tribunal held that the right to include the income from the East Bengal lands for rate purposes followed clearly from the 'pain meaning' of section 3 and 4 of the Bengal Agricultural Income-tax Act. Since they transferred for the text of the sections to the order of the Appellate Assistant Commissioner, it would seem that they were thinking of the sections, as they stood before their adaptation. Their reasoning is that since section 3 made the total agricultural income of an assessee liable to tax and since section 3 made the total agricultural income of an assessee liable to tax and since in the accounting year the lands, since fallen to East Pakistan, were a part of undivided Bengal, the total agricultural income for that year necessarily included the income from those lands as well and consequently such total would determine the rate of tax for the purpose of the assessment year 1947-48. In support of that view, the Tribunal referred to a number of decisions under the Indian Income-tax Act, relating to the position of income or loss or residence in Burma prior to the separation of that country form India in relation to the assessments in India for perspiration years. It was held in those cases that since the tax was imposed on the actual income of the accounting year, facts to be taken into account were those that existed than and therefore the term 'British India' was to be read in the pre-separation sense and income or loss or residence in Burma before the date of the separation was to be taken as such income or loss or residence in British India for the purposes of British India assessments for year preceding the separation. The cases referred to by the Tribunal were Commissioner of Income-tax, Madras v, Valliammai Achi, Rawji Dhanji & Co., In re, Commissioner of Income-tax, Madras v. Papammal, and E. M. V. Muthappa Chettiar v. Commissioner of Income-tax, Madras.
Apart from a special reason which makes the cases relied on by the Tribunal inapplicable, and to which I shall presently refer, they appear to me to have adopted those decision too readily. The partition of Bengal took place on the 15th of August, 1947. On the same day, the India (Adaptation of Existing Indian Laws) Order, 1947, came into force and by article 4 (2) of the order it was directed that references in any existing Indian law to 'Bengal' was to be, subject to certain exceptions which are not material here, replaced by the expression 'West Bengal'. In view of the definition of 'existing Indian law', as given in article 2 (1) of the Order, there does not appear to be any reason for limiting its operation, in the case of statute laws, to laws made by the Central Legislature. On and the from the 15th of August, 1947, therefore, section 4 of the Bengal Agricultural Income-tax Act was to be read as if it no longer defined 'total agricultural income' as comprising income derived from lands situated within Bengal and not including income derived from lands outside Bengal, but defined it as income derived from lands situated outside West Bengal and not including income derived from lands situated outside West Bengal. Mr. Sen, who appeared for the Commissioner of Agricultural Income-tax, submitted that the adaptation of section 4 was made, not by the Order of 1947, but by article 3 (2) of the Indian Independence (Adaptation of Bengal and Punjab Acts), Order, 1948, which came into force on the 31st March, 1948. That does not appear to me to be correct, because it is not possible to see how the operation of article 4 (2) of the earlier Order on Bengal Acts could be excluded. It is true that the later order contains a direct provision relating specifically to Bengal Acts, but the reason for its promulgation probably was that by it the term 'Bengal', as occurring in certain expressions where it would have to be replaced by 'West Bengal' by virtue of the earlier order, was retained and modifications in certain cases were made by the schedule to the order. That the earlier order applied to Bengal Acts as well would appear from article 4 of the later order which says that it provisions shall have effect, notwithstanding anything to the contrary contained in the India (Adaptation of Existing Indian Laws) Order, 1947. In cases where no modification was directed to be made by the later order of the 31st of March, 1948, the substitution of 'West Bengal' for 'Bengal' in Bengal Acts must be taken to have been made by the earlier order which came into force on the 15th of August, 1947. In any event, both these adaptations were made in the course of the assessment year 1947-48 with which we are here concerned, though in the second case it was made on the last day.
The position arising under the Indian Income-tax Act out of the separation of Burma from India was different. The separation came into effect on the 1st April, 1937, which was the first day of a financial year and with effect from the same date, the definition of 'British India', as given in section 3 (7) of the General Clauses Act, was amended as adoption which made it mean, for the period prior to the separation, a territory inclusive of Burma and for the period subsequent thereto, a territory in which Burma was not included. In the case of the partition of India and necessarily the partition of Bengal, the date of the partition and that of the commencement of the financial, and therefore the assessment, year did not coincide. Nor has there been any adaptation of the Bengal Agricultural Income-tax Act of the nature of the adaptation of the Indian Income-tax Act made in 1937 by the Government of India (Adaptation of Indian Laws) order or even on the present occasion by the India (Adaptation of Income-tax, Profits Tax and Revenue Recovery Acts) Order, 1947. In both cases, the term 'British India' was expressly given a meaning which would include, for the purposes of the period prior to the separation or partition, the territories which, by reason of such separation or partition, had gone out of India. Lastly, in the case of the Indian Income-tax Act, it is the annual Finance Act which brings its substantive provision into operation and makes tax chargeable according to the rate which the Finance Act declares, and the provisions of the Income-tax Act, thus brought into operation, are those as they stand at the date of the Finance Act, so that it is arguable that no subsequent amendments made in the Income-tax Act in the course of the assessment year would apply to the assessment of the income of the preceding accounting year. The same consideration does not apply to the case of the Bengal Agricultural Income-tax Act which does not require a Finance Act to bring it into operation and which itself lays down the rates at which tax shall be chargeable. It is also to be noted that the effect of the separation of Burma from India was not to distinguish either Burma or British India, both of which continued to exist, although in the latter case with a diminished content. In the presence case, the old province of Bengal ceased to exist altogether and the question of applying the Bengal Agricultural Income-tax Act which was amended, not at the beginning but at the middle or towards the end of the assessment year, presents a problem quite different from that which arose out of the separation of Burma in 1937.
Fortunately, these differences need not trouble us in the present case. I have referred to them only because the Tribunal have referred to certain decisions relating to Burma. In the present case, the Tribunal do not seem to have appreciated that on the principle they were applying, the income derived from the lands situated in East Bengal would be liable to taxation in. West Bengal and not merely liable to inclusion for the purposes of determination of the rate applicable to the West Bengal income. The Department, however, had not merely liable to taxation in West Bengal of the assessees 1353 income derived from East Bengal lands had to be decided, certain questions of extreme difficulty would have to be considered. The assessment could only be made under the provisions of the Bengal Agricultural Income-tax Act. On the commencement of the assessment year 1947-48 and up to the 14th August, 1947, or up to the 30th March, 1948, the Act was saying that an assessee would be liable to assessment on his total agricultural income derived from lands situated in Bengal, whereas after the date of the adaptation, it began to say that he would be liable to be assessed only on the income derived from lands situated in West Bengal. As I have already pointed out, the change took place in the course of the assessment year and the assessment itself was not made till 1951. In those circumstance, it might well be asked whether section 4, as it stood originally, would be applicable to an assessment of the income for 1353 B. S., or whether the section as subsequently adapted would be applicable. The cases dealing with the pre-separation connections with Burma are all explicable on the basis that the Income-tax Act, as it stood on the 1st April, 1937, which the Finance Act of 1937 brought into force, had simultaneously been amended so as to make the term 'British India' mean, from the very beginning of the assessment year, a territory inclusive of Burma so far as the period prior to the separation was concerned, and since the Indian Legislature, prior to the separation was concerned, and since the Indian Legislature, which had the right to tax its assessees in any way it liked, had expressly said that the income received, accrued or arisen in 'British India', in the sense which it was ascribing that term, would be taxable, no further difficulty could possible arise. It is true that the adaptation of the General Clauses Act is nor referred in the decisions referred by the Tribunal except in one case and in the rest the learned Judges proceed on general principles. It is, however, not without significance that the validity of those general principle was doubted by the Bombay High Court in the Case of Rawji Dhanji & Co., In re, although the learned Judges did not dissent from the Madras view for the reason that it would be desirable to observe unanimity in interpreting an all-India Act. In the present case, in view particularly of the fact that the adaptation was made in the middle of the assessment year and that the term 'Bengal' was not made to bear different meanings by any adaptation, the meaning of sections 3 and 4, as applicable to the facts of this case, is perhaps not so `plain as the Tribunal thought.
But, as I have pointed our, the Department had not taxed the assessees income derived from East Bengal, but has only included it in his total income for the purpose of determining the rate applicable. It is somewhat surprising that the Tribunal should have overlooked the basic difference between inclusion of income for the purposes of taxation and its inclusion only for rate purposes. The Department has proceeded, not on the basis that the East Bengal income was exempt from taxation in a West Bengal assessment but was, nevertheless, liable to be included for the purpose of the determination of the rate. It is that basis which must be shown to be correct if the assessment is to be upheld. In making the assessment, as I have pointed our, the Department could proceed only under the Act or under some rule or order, having the force of law. The Bengal Agricultural Income-tax Act does not contain any direct provision like Section 16 (1) (a) of the Indian Income-tax Act which puts down in express terms that, certain categories of income, though exempt from taxation, shall, nevertheless, be included in computing the total income of an assessee for the purpose of determining the rate at which the tax shall be payable. There is, however, section 10 in the East Bengal Act which has been held to carry such a meaning by implication. There is nothing even in section 10 which would cover the East Bengal income of the assessee in the present case. The reason given by the Tribunal, as I have already pointed our, cannot suffice, because that reasoning cannot apply to income exempt from taxation but included for rate purpose Mr. Sen first said that he would justify the inclusion by reference to article 7 of the Indian Independence (Rights, Property and Liabilities) Order, articles 3, 4 and 7, of the Indian Independence (Partition Councils) order and article 4 (1) (e) of the Arbitral Tribunal order. It was pointed out to him that the right of taxation in respect of past income did not pass to either of the Dominions by virtue of any division of assets under the various orders referred to by him, but it arose our of the creation to two sovereign States and followed from the provision contained in section 18 (3) of the Indian Independence Act. That was the view taken by this Court in the case of Province of East Bengal v. State of Tripura, and it was subsequently upheld by the Supreme Court in State of Tripura v. Province of East Bengal. No reference to the orders relied upon by Mr. Sen could, therefore, be relevant. Indeed, I fail to see how any adjustments made between two Governments regarding the assets of the undivided country could possible affect the domestic law applicable to the subjects and how the subjects could be bound by any such agreement, unless under the authority of some other Act, such agreement modified the relevant statutes themselves. In any event, even if the order had made any division on the basis that arrears of taxes, due on the income accruing in one of the two Dominions, would be taxed only by that Dominion, there is nothing in any of the orders to warrant the exemptions of income accruing in one Dominions, from assessment in another and inclusion of such income at the same time for the purpose of determining the tax. Mr. Sen next said that he would justify the inclusion by reference to article 10 of the India (Adaptation of Existing Indian Laws) Order, 1947, by which Courts, Tribunal or Authorities, requires or empowered to enforce an existing Indian law, had been given the power to adapt such laws for the purpose of rendering it consistent with the provisions of the Indian Independence Act, in case the order made no provision for such adaptation or made insufficient provision. He, however, could not explain in what manner the adaptation had been made and how it was necessary to exclude the income from tax, but include it for rate purposes in order to make the assessment consistent with the provisions of the Indian Independence Act. The lawyer Member had referred to what he calls 'the practice' or 'working arrangement' by or under which the income attributable to East Bengal was being left out of West Bengal assessments on the principle of the Agreement for Avoidance of Double Taxation in India and Pakistan, under which, according to him, income derived from property situated in one Dominion was chargeable cent. per cent. in that Dominion. He has not explained how any practice or working arrangement could have the effect of modifying the statute law or how that practice could warrant the inclusion of the East Bengal income solely for rate purposes. It also appears to me that the learned Member was entirely mistaken as to the true meaning of the Agreement on which he was relying. The Agreement says expressly by article VII (a) that nothing in it shall be construed as modifying or interpreting in any manner the provisions of relevant taxation laws in force in either Dominion and it again says in article IV that each Dominion shall make assessment in the ordinary way under its own laws. The substance of the Agreement is that if the assessment by a Dominion according to its own laws involves s assessment of any of the categories of income mentioned in the Schedule at a percentage higher than what is laid down there, necessary adjustments will be made and an abatement allowed. The Agreement thus proceeds on the correct principle that the laws of either Dominion could not possible be interfered with or affected by an inter-Government agreement and indeed is itself warranted by law, being authorised by section 49A of the Income-tax Act which also appears to have been overlooked. The 'practice' or 'working arrangement' referred to by the Lawyer Member is authorized by working in the General Agricultural Income-tax Act. Besides that the Agreement does not include agricultural income. I do not see, for the reasons I have just stated, how any support could be derived from it for what the learned lawyer Member calls 'the practice' or 'working arrangement' under which an assessment is being sought to be made, not in accordance with the statute law of the country, but on some fanciful basis.
Mr. Sen, in the last resort, referred to the Minutes of proceedings of the Meeting of the Bengal Separation Council, held on the 27th of November, 1947, and said that the arrangement, there agreed to, by the Governments of East and West Bengal justified the course adopted by the Agricultural Income-tax Officer in the present case. I was surprised to hear Mr. Sen refer to those proceedings which he placed before us from a publication printed at the West Bengal Government Press, but not stating that it was being issued under the authority of the State Government. Be that as it may, assuming that the proceedings so cited are admissible in evidence, I an entirely unable to see how even if the arrangement arrived at by the two Governments covered the present matter, it could debar a subject from insisting that he must be assessed only in accordance with the stature law of the country and not otherwise and how if the assessment was not in accordance with the statute, any justification for it could be found in the agreement. It is, however, not necessary to go as far as that basic ground in order to rule out the last argument of Mr. Sen, because the arrangement relied on by him has nothing whatever to do with the mode or extent of taxation in either of the two countries. It would appear that the Member for East Bengal raised the question of arrears of land revenue and taxes due for the periods prior to the date of the partition and proposed that a separate account should be maintained or arrears collected by each of the two Provinces and that the amounts, so collected, should be included in the computation of the assets of the two Provinces. I may say at one that the basis on which this suggestion was made was clearly a correct one, because it proposed only the division of the taxes after they had been collected from the subjects in accordance with law. The Chief Secretary to the Government of West Bengal pointed our some practical difficulties in the way of carrying out the suggestion, but ultimately a certain arrangement was decided. The arrangement was as follows :
'(a) In so far as may be possible, a separate account would be kept by each province to its collections of arrears of taxes and land revenue due for periods prior to the date or partition.
(b) Such collection should be included among the assets of the two provinces for the purpose of financial adjustment between them.
(c) Collections until the 31st May, 1949, only would be so treated.
(d) After that date each Government would make it own collections, which would not be taken in account in relation to the financial adjustment between the two provinces.' (See page 22 of the Publication.)
I can find no trace whatever of any intention in this arrangement that assessment to agricultural income-tax was to be made by either of the two countries in any particular manner or that, to refer to the present point, arrears of taxes accruing our or properties situated in one of the two countries prior to the partition could be taken into account of rate purposes in the assessment in the other country for the same period. The arrangement clearly leaves each of the two States free to impose and levy taxes according to the ordinary laws and only requires that a separate account should be kept and that the taxes, so collected, would be taken into account for the purpose of adjustment at a subsequent division of assets. I confess, how that arrangement could have the remotest bearing on the question we have before us, altogether baffles me.
The question we have to decide is a short and simple one and, as I said at the beginning, it almost answers itself. The Department has not sought to tax the income derived by the assessee from his lands in East Bengal. It has only included that income for the purposes the tax derived from East Bengal lands which, on its own showing, it was treating as exempt from taxation. I desire to make it clear that we say nothing as to whether the income derived from East Bengal lands during Pre-partition years would or would not be includible in the West Bengal assessments for those years. That question does not arise in the present case. The question simply is, if the pre-partition agricultural income derived from lands from East Bengal is treated in West Bengal as exempt from taxation, can it, at the same time, be included simply for tax purposes The answer to that question must be in the negative, since there is no law which authorises such a course.
For the reasons given above, the answer to the question referred must be in the negative, subject to the qualification that we say nothing as to whether the income concerned could or could not be included in the West Bengal assessment for the purposes of taxation, as distinguished from rate purposes.
The Commissioner of Agricultural Income-tax, West Bengal, will pay the costs of this reference, which will include the costs for the hearing on the 30th and the 31st August, 1954, - such costs to be divided between the two assessees in proportions of half and half.
SARKAR, J. - I agree.
Question answered in the negative.