The respondent, the Gwalior Rayon Silk Manufacturing (Weaving) Company Limited (hereinafter referred to as the company) is registered under the Indian Companies Act. It is necessary to set out how the company came to be established in order to understand the case put forward by the company. In October, 1946, Messrs. Birla Brothers Limited, Gwalior, wrote to the Government of Gwalior that they intended to establish at some suitable place in Gwalior a kind of industrial centre in which they intended to set up certain industries provided certain facilities were granted to them by the Government of Gwalior. The facilities for which they made the request were : (i) free adequate land at a suitable site ; (ii) free processing water if obtainable from a river and at a specially concessional rate if obtainable from a dam ; and (iii) exemption from any form of taxation on income for a period of fifteen years from the date of the starting of the factories. On this letter being received, the matter was processed in the Secretariat of the former State of Gwalior. The Secretariat noting shows that the decision to establish industries in Gwalior was largely to be influenced by the decision of the Gwalior Government as to the facilities asked for. The Secretariat also noted that no positive scheme regarding the proposed industrial centre had been submitted but that only tentative proposals were made to ascertain if the State was willing to grant the concessions asked for. It was pointed out that the main question that required consideration was with respect to exemption from any form of taxation on income for a period of fifteen years. It was also pointed out that no income-tax was leviable in that State at that time and that exemption from income-tax for a period of fifteen years would lead to the establishment of the industries which thereafter would yield income in the shape of taxes to the State. It was therefore proposed by the Secretariat that the concessions asked for might be granted. Later, however, the period of exemption from taxation on income was reduced from fifteen to twelve years and it was recommended that this might be granted in order to attract the establishment of industries in the State.
The respondent, M. Ganapathi Mudaliar, hereinafter referred to as the assessee, joined the cloth business started by Ayyaru in Singapore, in the name of Thyagesan and Company. The assessee had married Ayyaru's sister. By an agreement dated September 23, 1940 (annexure "A") between Ayyaru and the assessee, the assessee was engaged as a manager for a period of three years from September 23, 1940. His remuneration was to be a fixed salary at the rate of $ 18 per month and a commission of 10% on the net profits of the business, to be calculated at the end of the said three years. He was also to be provided with free board and lodging. Clause 4 of the agreement provided that the net profits of the business shall be as shown in the profit and loss account of the business. On the same day, a power of attorney (annexure " B ") was executed by Ayyaru in favour of the assessee, enabling him to carry on the business of a cloth and general merchant, being carried on at No. 182, Selgie Road, Singapore. It appears that on September 29, 1945 (annexure " C "), Ayyaru sold the said business and the goodwill thereof, with the other assets of the said business, at the price of $ 4,441.78.
This is an appeal by the Commissioner of Income Tax, Madras, against the judgment of the High Court, dated November 16, 1959, on a certificate granted by the High Court under s. 66A(2) of the Indian Income Tax Act, 1922. The respondent, Mir Mohd. Ali, hereinafter referred to as the assessee, is a bus owner and transport operator at Vel- lore, North Arcot District. He had a fleet of buses, and during the year of account ending with March 31, 1950 (relevant to assessment year 1950-51) he replaced the petrol engines in two of his buses (MDJ 583 and MDJ 723) by new Diesel engines, incurring an expenditure of Rs 18,544/in this connection. Before the Income Tax Officer, apart from claiming normal depreciation under the first Paragraph of cl. (vi) of s. 10(2), he also claimed depreciation under the second paragraph of cl. (vi) and cl. (via) of the Indian Income Tax Act, 1922. The Income Tax Officer only allowed 25 per cent depreciation under the first paragraph of cl.
The respondent, Mir Mohd. Ali, hereinafter referred to as the assessee, is a bus owner and transport operator at Vellore, North Arcot District. He had a fleet of buses, and during the year of account ending with March 31, 1950 (relevant to assessment year (1950-51), he replaced the petrol engines in two of his buses (MDJ 583 and MDJ 723) by new diesel engines, incurring an expenditure of Rs. 18,544 in this connection. Before the Income-tax Officer, apart from claiming normal depreciation under the first paragraph of clause (vi) of section 10(2), he also claimed depreciation under the second paragraph of clause (vi) and clause (via) of the Indian Income-tax Act, 1922. The Income-tax Officer only allowed 25% depreciation under the first paragraph of clause (vi). The assessee appealed unsuccessfully to the Appellate Assistant Commissioner on this point. There were other points involved in the appeal but as we are not concerned with them in this appeal, they are not being mentioned. On further appeal, the Appellate Tribunal held that " the assessee is not entitled to extra depreciation under section 10(2)(vi) or section 10(2)(via) because, however important the engine might be for running of a motor, it is after all part of an equipment and it cannot by itself become "machinery" for the purpose of claiming extra depreciation, as envisaged in these sub-sections. We have to hold that the installation of the new engines is only a capital addition; for the above reasons the assessee was rightly refused the extra depreciation he claims."
The point involved in this appeal is the same as in Commissioner of Income-tax v. Swadeshi Cotton and Flour Mills, in which we have just delivered judgment. This appeal was filed in this court after obtaining a certificate under section 66A(2) of the Income-tax Act, 1922, and is directed against the judgment and order of the High Court of Madhya Pradesh, dated August 10, 1961. The High Court followed its decision in the case of Swadeshi Cotton and Flour Mills v. Commissioner of Income-tax.
The respondent, Swadeshi Cotton and Flour Mills, hereinafter referred to as the assessee, is a limited company which owns and runs a textile mill at Indore. For the assessment year 1950-51 (accounting year calendar year 1949), which was its first year of assessment under the Indian Income-tax Act, 1922 (hereinafter referred to as the Act), it claimed that under section 10(2)(x) of the Act it was entitled to an allowance in respect of the sum of Rs. 1,08,325 which it had paid as bonus for the year 1947 in the calendar year 1949, as a result of the award of the Industrial Tribunal, dated January 13, 1949. The claim of the assessee was not accepted by the income-tax authorities. The Appellate Tribunal held that it was a liability relating to an earlier year and not the year 1949.
In the assessment of the respondent firm for the year 1949-50 the Second Additional Income-tax Officer, Vellore, declined to accept the statement of account that the firm had earned till August 2, 1948, a net profit of only Rs. 28,643 as truly representing the profits of the firm. He observed that " no stock valuation of the picture has been taken but only the excess collection over purchase value has been returned ", indicating thereby that in his view from the statement of account which omitted to include at the close of the year the value of the rights in the film for the unexpired period, the profits of the firm could not properly be deduced. The Income-tax Officer estimated the value of the rights for the unexpired period of exploitation to which the firm was entitled on August 2, 1948, at Rs. 65,000 and computed the net profits of the firm as an unregistered firm at Rs. 93,642 and assessed income-tax and super-tax payable by the firm on that footing.
For the assessment year 1949-50 the Income-tax Officer assessed the respondent to income-tax on the basis of the accounts so made. It appears that some time after March 31, 1949, representations were made to the Government for relieving the respondent from the loss sustained in the supply of bread to the hospital. The Government by its order dated November 24, 1950, directed payment of compensation for the loss sustained by the respondent in respect of the supply of bread to the hospital during the year 1948-49 under the said contract. The respondent received on that account payment of Rs. 12,447 during the year of account 1950-51. In the assessment year 1951-52 the Income-tax Officer included the said amount in the assessment of that year. The assessee, inter alia, contended that he received the said sum in respect of the contract that was entered into by him with the Government during the accounting year 1948-49, and, therefore, it could not be included in the assessment year 1951-52. This contention was rejected by the Income-tax Officer and, on appeal, by the Appellate Assistant Commissioner and also, on further appeal, by the Income-tax Appellate Tribunal. But the contention received favour with the High Court on a reference made to it under section 66(1) of the Indian Income-tax Act, 1922, hereinafter called the Act.
The assessee is a resident company incorporated outside India. Most of its shareholders are in the United Kingdom. During the accounting period ending March 31, 1955, it paid pound 1,302-9-4 and pound 1,303 towards estate duty which was payable on the death of certain shareholders who were not domiciled in India. The assessee debited the said amounts to revenue in its accounts in ascertaining the profits and gains of its business for the said year. Similarly, for the accounting year ending March 31, 1956, it paid a sum of pound 3,809-1-5 towards estate duty payable on the death of certain shareholders and debited the said amount to revenue in its accounts in ascertaining the profits and gains of its business for that year. The Income-tax Officer included the said amounts so paid towards estate duty in the profits and gains of the company for the said two accounting periods and assessed the company to income-tax for 1955-56 and 1956-57 on that basis. The appeals preferred by the assessee to the Appellate Assistant Commissioner were dismissed. On further appeal to the Appellate Tribunal it held that the assessee was entitled to deduct the said amount in computing its profits ; and on that finding it set aside the orders of the Appellate Assistant Commissioner. On an application made by the Commissioner of Income-tax, the Appellate Tribunal stated a case under section 66(1) of the Act to the Kerala High Court, and referred the following question of law for its opinion :
The appellant, Dr. Shamalal Narula, is the manager of a Hindu undivded family, which owned, inter alia, 40 bighas and 11 biswas of land in the town of Patiala. The Patiala State Government initiated land acquisition proceedings for acquiring the said land under Regulations then prevailing in the Patiala State. It is common case that the State Regulations are in pari materia with the provisions of the Act. The State of Patiala first merged into the Union of Pepsu and later the Union of Pepsu merged into the State of Punjab. It is also common case that there was a Land Acquisition Act in the Union of Pepsu containing provisions similar to those obtaining in the Act. On October 6, 1953, the Act was extended to the Union of Pepsu. On September 30, 1955, the Collector of Patiala made an award under the Act as a result of which the appellant received on December 1, 1955, a sum of Rs. 2,81,822, which included a sum of Rs. 48,660 as interest up to the date of the award. For the year 1956-57, the Income-tax Officer included the said interest in the income of the Hindu undivided family of which the appellant is the manager, and assessed the same to income-tax, after overruling the appellant's contention that the said interest was a capital receipt and, therefore, not liable to tax. On June 14, 1957, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. The appellant preferred an appeal to the Income-tax Appellate Tribunal. The said Tribunal by its order dated July 9, 1957, held that the said amount representing the interest was a capital receipt and on that finding the said amount was excluded from the total income of the assessee. At the instance of the Commissioner of Income-tax the said Tribunal referred the following question to the High Court of Punjab under section 66(1) of the Income-tax Act, 1922 :
The appellant which is a Hindu undivided family was the registered holder of 1,500 shares of Messrs. Govan Bros. (Rampur) Ltd. in the year of account October 1, 1950, to September 30, 1951. Pursuant to a resolution passed by the board of directors of Messrs. Govan Bros. (Rampur) Ltd.—hereinafter called "Govan Bros."—at a meeting held on August 30, 1950, the appellant received a dividend warrant dated December 28, 1950, for Rs. 4,12,500 being interim dividend in respect of its shareholding in Govan Bros. This amount was brought to tax with the other income of the appellant in the assessment year 1952-53 by the revenue authorities, after rejecting the objection of the appellant that it represented income for the assessment year 1951-52.
The respondent, L. W. Russel, is an employee of the English and Scottish Joint Co-operative Wholesale Society Ltd., Kozhikode, hereinafter called the Society, which was incorporated in England. The Society established a super-annuation scheme for the benefit of the male European members of the Society's staff employed in India, Ceylon and Africa by means of deferred annuities. The terms of such benefits were incorporated in a trust deed dated July 27,1934. Every European employee of the Society shall become a member of that scheme as a condition of employment. Under the terms of the scheme the trustee has to effect a policy of insurance for the purpose of ensuring an annuity to every member of the Society on his attaining the age of super-annuation or on the happening of a specified contingency. The Society contributes 1/3 of the premium payable by such employee. During the year 1956-57 the Society contributed Rs. 3,333 towards the premium payable by the respondent. The Income-tax Officer, Kozhikode Circle, included the said amount in the taxable income of the respondent for the year 1956-57 under section 7(1), Explanation 1, sub-clause (v) of the Act. The appeal preferred by the respondent against the said inclusion to the Appellate Assistant Commissioner of Income-tax, Kozhikode, was dismissed. The further appeal preferred to the Income-tax Appellate Tribunal received the same fate. The assessee thereupon filed an application under section 66(1) of the Act to the Income-tax Appellate Tribunal for stating a case to the High Court.
For the assessment year 1947-48 the appellant in Civil Appeal No. 142 of 1963 filed a return of her income before the Income-tax Officer, District IV, Calcutta, and the assessment was completed some time in 1948 as a result whereof it was found that no tax was payable by her. On April 2, 1956, the Income-tax Officer served on her a notice dated March 19, 1956, under section 34(1) of the Indian Income-tax Act, 1922, hereinafter called the Act, on the ground of escaped assessment. The date of the notice fell within 8 years from the end of the relevant assessment year, i.e., March 31, 1948, but it was served beyond 8 years from that date and, therefore, was clearly out of time under the provisions of the said section. In Civil Appeal No. 143 of 1963, for the assessment year 1947-48 the appellant was assessed on a total income of Rs. 28,993 on December 30, 1948, by the Income-tax Officer and the tax thereon amounting to Rs. 4,747-13-0 was deposited on behalf of the appellant in the Reserve Bank of India. On April 2, 1956, the appellant was served with a notice dated March 19, 1956, by the Income-tax Officer purporting to be under section 34 of the Act on the ground of escaped assessment. The date of the notice fell within 8 years from the end of the relevant assessment year, i.e., March 31, 1956 ; but it was served beyond 8 years from that date and was, therefore, clearly out of time under the provisions of the said section.
The firm carried on business as dealers and commission agents in jute, rice and other commodities. For the account year 2001-2002 Bikram Samvat (September 27, 1944, to October 15, 1945) the firm was assessed in the assessment year 1946-47 by the Income-tax Officer, Non-Companies-cum-E.P.T. Circle, under section 23(3) of the Indian Income- tax Act. On February 19, 1955, the Income-tax Officer, Central Circle VI, to whom the case was transferred by the Central Board of Revenue, issued a notice under section 34 of the Act calling upon the firm to file a revised return of income for the corresponding accounting year. Pursuant to this notice the firm filed are turn showing an income of Rs.2,75,168 according to its original assessment as reduced in appeal. The Income-tax Officer thereafter inspected the books of account of the assessee and found that on November 2, 1944, an amount of Rs. 5,00,000 was tendered in cash to the Barabazar Branch of the Central Bank of India with instructions to trans fer the same to the Bombay head office of the bank and a demand draft for the said amount was issued through the Bombay head office of the bank on its Jamnagar branch, which was at the material time situate in the territory of the Indian State of Nawanagar. Out of the remittance a fixed deposit receipt was purchased in the name of Raghunath Prasad Agarwalla, son of Rawatmul Nopany, with the Jamnagar branch of the Central Bank of India on November 8, 1944. This Raghunath Prasad Agarwalla died on August 16, 1945, and the fixed deposit receipt matured on December 19, 1945. Upon maturity the sum of Rs. 5,00,000 was not paid to the heirs of Raghunath Prasad Agarwalla, but it was adjusted against the overdraft of the assessee.
The assessee, who was a distiller and seller of bottled country liquor, started collecting from its customers from the year 1945, besides the price of the liquor and the bottles in which the liquor was sold, a further charge called " empty bottles return security deposit ". This charge was made at a certain rate per bottle delivered depending on its size on the term that it would be refunded as and when the bottles were returned to the assessee and that the entire sum collected on this account in respect of any one transaction would be refunded in full on return of 90 per cent. of the bottles covered by it. The question is whether this charge is a trading receipt assessable to tax. In the earlier case this court held it to be assessable. This court then said : " . . . the trade consisted of sale of bottled liquor and the consideration for the sale was constituted by several amounts respectively called, the price of the liquor, the price of the bottles and the security deposit. Unless all these sums were paid the appellant would not have sold the liquor. So the amount which was called security deposit was actually a part of the consideration for the sale and, therefore, part of the price of what was sold. "
The assessee held shares by way of investments and also as stock-in-trade of its business as a share dealer. We are concerned in this case only with its holdings of ordinary shares in Rohtas Industries Ltd. In 1944 the assessee acquired 31,909 of these shares at a cost of Rs. 5,84,283 and was holding them in January, 1945. In that month the Rohtas Industries Ltd. distributed bonus shares at the rate of one ordinary bonus share for each original share and so the assessee got 31,909 bonus shares. Between that time and December 31, 1947, the assessee sold 14,650 of the original shares with the result that on January 1, 1948, it held the following shares : (a) 17,259 original shares acquired in 1944, (b) 31,909 bonus shares issued in January, 1945, (c) 59,079 newly issued shares acquired in the year 1945 after the issue of the bonus shares and (d) 2,500 further shares acquired in 1947. The total holding of the assessee on January 1, 1948, thus came to 1,10,747 shares which in its books had been valued at Rs. 15,57,902. In arriving at this figure the assessee had valued the bonus shares at the face value of Rs. 10 each and the other shares at actual cost. On January 29, 1948, the assessee sold all these shares for the total sum of Rs. 15,50,458, that is, at Rs. 14 per share and in its return for the year 1949-50 claimed a loss of Rs. 7,444 on the sale. It is this return which has led to this appeal.
The tax sought to be realised became due under two assessment orders passed by an Income-tax Officer on March 23, 1955, in respect of the years 1953-54 and 1954-55 finding that the assessee's income for the earlier year was Rs 61,000 on which a tax of Rs 19,808-1-0 was due and that for the other year was Rs 1,21,000 creating a tax liability of Rs 66,601-3-0. Notices of demand under section 29 of the Act were issued in respect of these dues. The assessee filed appeals to the Appellate Assistant Commissioner against the assessment orders but did not pay the tax as demanded by the notices. On such failure to pay, the Income-tax Officer some time in September, 1955, sent certificates to the Deputy Commissioner, Kolar, under section 46(2) of the Act for recovery of the tax as arrears of land revenue and the latter in the course of the same month attached various properties of the assessee under the Revenue Recovery Act. Thereafter, on December 17, 1955, the appeals filed by the assessee which were till then pending were decided by the Appellate Commissioner. He reduced the assessable income of the assessee to Rs 27,000 for the year 1953-54 and to Rs 45,000 for the year 1954-55 and directed the Income-tax Officer to recompute the tax on the basis of the reduced income and to refund the excess, if any, collected. It appears that thereafter on February 19, 1956, the Income-tax Officer informed the assessee that his tax liability for 1953-54 had been reduced to Rs 4,215-9-0 and for 1954-55 to Rs 13,346-8-0 and called upon him to pay these amounts at once into the local treasury. The assessee filed further appeals against the orders of the Appellate Commissioner and asked that the recovery proceedings might be stayed pending decision of these appeals and on that request being rejected, moved the High Court of Mysore by two petitions under article 226 of the Constitution for quashing the recovery proceedings as invalid with the result earlier mentioned. We are not concerned with the appeals filed by the assessee from the appellate orders and no further reference to them will be made in this judgment. The contention of the assessee is that in view of the orders of the Appellate Commissioner, the earlier orders, notices of demand and certificates must be deemed to have been superseded and the attachments therefore ceased to be effective from the date of the appellate orders and could no longer be proceeded with. He contends that the Income-tax Officer had to start afresh by serving a new notice of demand and taking the necessary further steps thereon for realisation of the tax which then was due only under the appellate orders. These contentions were accepted by the High Court. The revenue authorities, on the other hand, contend in short that the Act does not provide for any such supersession.
The High Court has held that the appellant is not a State-owned Corporation and that it is not carrying on business on behalf of the Government. It has also observed that the trade or business which the appellant was carrying on was not incidental to the ordinary functions of Government, and since no declaration had been made to that effect under article 289(3), the appellant could not rely on article 289(1). The contention that the appellant was a local authority which was urged before the High Court was rejected, and the argument that the charging section of the Income-tax Act was repugnant to the material provisions of the Act, such as sections 28, 29 and 30, was also held to be without any substance by the High Court. Thus, since none of the arguments urged by the appellant before the High Court was accepted, the writ petitions filed by it were dismissed. The main point urged before us by the learned Advocate-General of Andhra Pradesh on behalf of the appellant is that the income in respect of which the impugned order of assessment has been passed by respondent No.1, is exempt from Union taxation under article 289(1) of the Constitution, and that raises the question about the construction and effect of the provisions of the three clauses of article 289.
The appellant held office as the last Governor-General of India. Under section 3 of Central Act XXX of 1951 the appellant is entitled to a pension of Rs. 15,000 per annum and has been drawing this sum residing in the City of Madras. The Corporation of Madras--the first respondent before us--demanded profession tax from the appellant under section 111(1)(b) of the City Municipal Act (1919), hereinafter called the Act, for the year 1958-1959 on the ground of the appellant's residence within the city for the period therein specified and his drawing the pension to which he was entitled. The appellant addressed a communication to the Corporation asserting that this demand was illegal as the Corporation was empowered by the relevant constitutional provisions merely to levy a tax " on a profession, trade, calling or employment " and that, as he as a pensioner did not fall under any of these classes, the said demand was illegal. The authorities of the Corporation, however, insisted on compliance with the demand on the ground that under the express terms of the Act persons in receipt of pensions were also liable to the tax. The appellant thereupon filed a writ petition for the relief already set out, and, as the validity of the State Act was impugned, impleaded the State of Madras also as a respondent.
Civil Appeal No. 598 of 1962 is an appeal from the High Court of Bombay at Nagpur and has been filed by the Municipal Committee of Amravati against a decision of the High Court allowing the first respondent's petition under articles 226 and 227 of the Constitution.The Municipal Committee of Amravati has been established under the C.P. and Berar Municipalities Act, 1922 C.P. and Berar Act II of 1922), hereinafter referred to as the Act. Chapter IX of the Act deals with the imposition, assessment and collection of taxes which might be imposed by the Municipal Committee. Section 66 specifies the taxes which, subject to the provisions of the Chapter, the Committee may from time to time impose. Its first sub-section specifies in its several clauses 15 varieties of taxes and among them is clause (0) which reads : "The terminal tax on goods or animals imported into or exported from the limits the of the municipality provided that terminal tax under this clause and an octroi under clause (e) shall not be in force in any municipality at the same time."