BRIJ BEHARI PRASAD Vs. COMMISSIONER OF INCOME TAX
LAWS(ALL)-1965-8-6
HIGH COURT OF ALLAHABAD
Decided on August 02,1965

BRIJ BEHARI PRASAD Appellant
VERSUS
COMMISSIONER OF INCOME-TAX, U. P. Respondents

JUDGEMENT

MANCHANDA, J. - (1.)THIS is a case stated under section 66(1) of the Income-tax Act (hereinafter referred to as the Act) by the Income-tax Appellate Tribunal. The two questions referred are :
"(1) Whether, on a true interpretation of the provisions of section 3(2) of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, and para. 5 of the Merged States (Taxation Concessions) Order, 1949, the income, profits and gains arising in the State of Rampur during the accounting year ending on 30th April, 1948, could be assessed under the Indian Income-tax Act for the assessment year 1948-4 ?

(2) Whether, on the facts and circumstances of the case, the accounting year ending 30th April, 1948, could be treated as the previous year for the assessment year 1948-49 within the meaning of section 2(11)(i)(b) ?"

(2.)THE material facts as culled from the statement of the case are these : THE relevant assessment year is 1948-49. THE previous year of the assessee was the financial year under the Rampur Income-tax Act which was from the 31st May, 1947, to the 30th April, 1948. THE assessee is an individual and was a resident of the Rampur State. THE assessee was being assessed to income-tax on the basis of his income for the year ending 30th April, each year. His assessment up to and including the assessment year 1947-48, the previous year ending 30th April, 1947, had been completed under the Rampur Income-tax Act. No assessment had been made under the Rampur State Income-tax Act for the relevant assessment year 1948-49. Rampur State merged with the Indian dominion on the 15th May, 1949. On the 1st August, 1949, it became a Chief Commissioners province and finally on the 1st December, 1949, it became a Chief Commissioners province and finally on the 1st December, 1949, it merged with the United Provinces. As a consequence of the merger, the Central Taxation Laws were made operative in this State by the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, hereinafter referred to as the Taxation Laws Act, 1949.
After the merger, for the relevant assessment year 1948-49, the assessee returned an income of Rs. 18,900 and was duly assessed under section 23(1) of the Indian Income-tax Act on the 24th February, 1951. THE Income-tax Officer, subsequently, discovered that the assessee had received dividend amounting to Rs. 1,61,926 on the 16th July, 1947, from the Rampur Tent and Army Equipment Manufacturing Co. Ltd. which had gone into voluntary liquidation. Accordingly, proceedings under section 34 of the Indian Income-tax Act were started and the aforesaid amount brought to assessment, after rejecting the various contentions raised by the assessee. THE Appellate Assistant Commissioner upheld the assessment but the Tribunal set aside the assessment with a direction to the Income-tax Officer to make a fresh assessment according to law from the stage of the issue of the notice under section 23(2) of the Act. THE assessee having asked for a reference under section 66(1) of the Act, the questions aforesaid have been referred.

Two main contentions have been raised by Mr. Jagdish Swarup for the assessee. They are : (1) That no assessment for the assessment year 1948-49 was possible to be made under the Indian Income-tax Act as the Indian Income-tax Act and the Finance Act of 1949 were only made applicable in respect of Merged States as from the 1st April, 1949, and (2) that the Central Board of Revenue or the Commissioner of Income-tax had no authority under section 2(11)(i)(b) of the Income-tax Act to issue any direction in respect of any previous year ending prior to the 1st April, 1949, as the Income-tax Act was not applicable prior to that date.

In order to appreciate these contentions, the relevant provisions may be set out. Section 3(1) of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, hereinafter referred to as the Taxation Laws Act, 1949, extends certain taxation laws to Merged States. It provides that the Indian Income-tax Act of 1922 and the Indian Finance Act of 1949 and all rules and orders made thereunder shall operate as if they had been extended to and brought into force in all the Merged States on the 1st day of April, 1949. Section 7(1) provides as follows :

"7. Repeal of corresponding laws and savings. - (1) If, immediately before the 26th day of August, 1949, there was in force in any of the Merged States any law relating to income-tax, super-tax or business profits tax, that law shall cease to have effect except for the purposes of the levy, assessment and collection of income-tax and super-tax in respect of any period not included in the previous year for the purposes of assessment under the Indian Income-tax Act, 1922, as extended to that State by section 3 or, as the case may be, the levy, assessment and collection of business profits tax for any chargeable accounting period ending on or before the 31st day of March, 1948, and for any purposes connected with such levy, assessment or collection :

Provided that any reference in any such law to an officer, authority, tribunal or court shall be construed as a reference to the corresponding officer, authority, tribunal or court appointed or constituted by or under the Indian Income-tax Act, 1922, or, as the case may be, the Business Profit Tax Act, 1947, as extended by section 3 to that Merged State."

By the Taxation Laws Act, the Indian Income-tax Act and the Indian Finance Act of 1949 were extended to all Merged States. Under sub-section (2) of section 3, the date on which the Indian Income-tax Act and the Indian Finance Act were brought into force in the Merged State was the 1st day of April, 1949.

(3.)THE Merged States (Taxation Concessions) Order, 1949, hereinafter referred to as the Concessions Order, was made in exercise of the powers conferred by section 60A of the Indian Income-tax Act whereby certain exemptions and reductions in the rate of tax and modifications were specified. Section 5(1) reads :
"5. (1) THE income, profits and gains of any previous year ending after the 31st day of March, 1948, which is a previous year -

(i) for the Merged State assessment year 1948-49

(ii) for the Merged State assessment year 1949-50,

shall be assessed under the Indian Income-tax Act, 1922, if and only if such income profit such profits and gains have not, before the 1st day of August, 1949, been assessed under the State law. (2) Where the income, profits and gains referred to in sub-paragraph (1) have not been assessed under the State law, they shall be assessed under the Indian Income-tax Act, 1922, and the tax payable thereon shall be determined as hereunder.....

(3) For the purposes of this paragraph -

(a) THE Merged State assessment year 1948-49 means the assessment year which commences on any date between the 1st April, 1948, and the 31st December, 1948, both dates inclusive : and

(b) the Merged State assessment year 1949-50 means the assessment year which commences on any date between the 2nd January, 1949, and the 31st July, 1949, both days inclusive.

6. (1) THE income, profits and gains of any previous year ending after the 31st day of March, 1948, which does not fall within paragraph 5 of this Order or of any previous year commencing after the previous year referred to in the said paragraph shall be assessed under the Indian Income-tax Act, 1922, but the tax payable on so mush of the income as pertains to the period ending before the 1st day of August, 1949, shall be determined as hereunder.....

In other words, ordinarily no assessment can be made for any assessment year prior to 1949-50 under the Indian Income-tax Act. Section 5(1) of the Concessions Order however would indicate that the income shall be assessed under the Indian Income-tax Act, 1922, in respect of all previous years ending after the 31st day of March, 1948, which is previous year for the Merged State assessed before the 1st day of August, 1949, under the State law. All the conditions of paragraph 5(1) of the Concessions Order would appear to have been satisfied in the present case in as much as the income profits and gains was in respect of a previous year ending after the 31st day of March, 1948, as the previous year of the assessee in the present case was admittedly 30th April, 1948. Further, no assessment, admittedly had been made under the State law before the 1st August, 1949, and the previous year ending on the 30th April, 1948 was for the Merged State assessment year 1948-49.

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