Abdullabhai M. Bhagat, Vs. The
Income-Tax Officer, Special Circle, Madras  INSC 111 (22 March 1961)
AIYYAR, T.L. VENKATARAMA DAS, S.K.
CITATION: 1961 AIR 1389 1962 SCR (1) 512
purposes" and "for the purposes of the Central Government",
Meaning of-Finance Act, 1942 (XII of 1942), s. 8(1)-Government of India Act,
1935 (25 and 26 Geo. V. Ch. 42), ss. 100, 124(1), 138(1) Proviso (b), 313,
Seventh Schedule item 54, List I, General Clauses Act, 1897 (10 of 1897), ss.
3(8ab) (a), 18a.
The petitioners as partners of a registered
firm were assessed to income-tax for the relevant assessment years.
Thereafter they made a disclosure of their
income under a "Voluntary Disclosure Scheme" regarding profits which
had escaped assessment, and on reassessment of the disclosed income income-tax,
super-tax and surcharge were levied. The levy of surcharge but not income-tax
and super-tax was challenged as unauthorised.
Held, that the power to legislate for levy of
tax on income was conferred upon the Federal Legislature by s. 100 subss. (1)
and (2) of the Government of India Act, 1935, and item 54 of List I of the
Seventh Schedule and the Federal Legislature was competent under that entry to
legislate in regard to the levy of a surcharge on tax; s. 138(1) proviso (b)
did not restrict the amplitude of that legislative power. The term
"Federal purposes" in s. 138 is not defined in the Government of India
Act nor in the General Clauses Act; but there is sufficient indication in the
section itself that surcharges were to form part of the Revenues of the
Federation and such Revenues were to be expended for the purposes therein
mentioned. The concept of the words "purposes of the Central
Government" under the General Clauses Act was not different from what was
intended by the use of the words "Federal purposes" in s. 138(i)
proviso (b) of the Government of India Act.
ORIGINAL JURISDICTION: Petitions Nos. 140 and
177 to 191 of 1959.
Petitions under Article 32 of the
Constitution of India for enforcement of Fundamental Rights.
M. R. M. Abdul Karim and K. R. Choudhury, for
K. N. Rajagopala Sastri and D. Gupta, for
513 1961. March 22. The Judgment of the Court
was delivered by KAPUR, J.-These are sixteen petitions under Art. 32 of the
Constitution challenging the legality of the imposition of surcharge imposed on
the income of the assessees under the Finance Acts of 1942, 1943, 1944 and
1945. The assessment relates to four assessment years 1942-43, 1943-44, 1944-45
The petitioners are four partners of a firm
named Mohammedaly Sarafaly & Co., Madras, which was carrying on business in
hardware, stocks, shares, etc. For the assessment years 1942-43 to 1945-46 this
firm was treated as a registered firm under the Indian Income-tax Act and
therefore the partners were assessed on their respective shares of the profits
from the business of the firm. All assessments were completed before 1949 and
total income for the purpose of assessment for those four years was about Rs. 29,00,000.
In 1955 the petitioners under a 'Voluntary Disclosure Scheme' with regard to
profits which had escaped assessment made a disclosure of their income and
proceedings were taken under s. 34 of the Income-tax Act. In the month of
April, 1959, there was a reassessment on all the four partners and the total
income for the four assessment years thus came to about Rs. 35 lakhs which
included Rs. 29 lakhs already assessed. On that income, income-tax, super-tax,
and surcharge were levied. The surcharge, according to the petition was Rs.
3,82,791. It is this surcharge which is impugned as being, without the
authority of law inasmuch as the then Federal Legislature, it is submitted, was
not competent to levy the surcharge.
Provision for surcharge was made under s.
8(1) of the Finance Act, 1942 (Act XII of 1942). This section may now be
quoted:Section 8(1) "Subject to the provisions of sub-sections (2) and
(3),(a) income-tax for the year beginning on the 1st day of April, 1942, shall
be charged at the rates specified in Part I of Schedule II increased in the
cases to which subparagraph (b) of paragraph A 65 514 and paragraph B of that
part apply with a surcharge for the purposes of the Central Government at the
rate specified therein in respect of each such rate of income-tax, and (b)
rates of super-tax for the year beginning on the 1st day of April, 1942, shall,
for the purpose of section 55 of the Indian Income-tax Act, 1922, be those
specified in Part II of Schedule II increased in the cases to which paragraphs
A, B and C of that Part apply by a surcharge for the purposes of the Central
Government at the rate specified therein in respect of each such rate of
super-tax." It was contended that the Federal Legislature had no power
under the Government of India Act, 1935,(25 and 26 Geo V, Ch. 42), to impose a
surcharge "for the purposes of the Central Government". The
legislative power of the Federal Legislature was given in s. 100 of the
Government of India Act, 1935, and the power to tax income was contained in
item 4 of List I of the Seventh Schedule which was as follows:
"Taxes on income other than agricultural
income." Part VII of the Government of India Act, 1935, deals with
Finance, Property and Suits and the first chapter deals with Finance. The
relevant section which has been relied upon by the petitioners, i.e., s. 138(1)
of that Act, is in that Part which deals with Distribution of Revenues between
the Federation and the Federal Units. That section reads: Section 138(1)
"Taxes on income other than agricultural income shall be levied and
collected by the Federation...................
(b) the Federal Legislature may at any time
increase the said taxes by a surcharge for Federal purposes and the whole
proceeds of any such surcharge shall form part of the revenues of the
Federation." It was submitted that according to this section the power of
the Federal Legislature to impose a surcharge was only for Federal purposes;
that by s. 8(1) of the Finance Act, 1942, and similar provisions in 515 the
other Finance Acts of three following years, the surcharge had been levied
"for the purposes of the Central Government" and that the terms
"the purposes of the Central Government" and "for Federal
purposes" were not the same but were two different concepts. Section 311
of the Government of India Act, 1935, deals with Interpretation but
"Federal purposes" is Dot defined in that section. In subsection (3)
of s. 313 which is in Part XIII, dealing with Transitional Provisions, it is
provided:-Section 313(3) "References' in the provisions of this Act for
the time being in force to the Governor-General and the Federal Government
shall, except as respects matters with respect to which the Governor-General is
required by the said provisions to act in his discretion be construed as
references to the Governor-general in council, and any reference to the
Federation, except where the reference is to the establishment of the
Federation, shall be construed as a reference to British India, the
Governor-General in Council, or the Governor-general, as the circumstances and
the context may require." On the basis of this section it was urged that
the term "Federal purposes" in s. 138(1)(b) of the Government of
India Act, 1935, means the purposes of the Federal Government, i.e., of the
Governor-General in Council or the Governor-General as the case may be and that
in the context it is a term of lesser amplitude than the term "purposes of
the Central Government". "Central Government" in s.
3(8ab)(a) of the General Clauses Act, 1897,
was defined as follows: Section 3 (8ab) "Central Government' shall(a) in
relation to anything done or to be done after the commencement of Part III of
the Government of India Act, 1935, mean the Federal Government;".
"Federal Government" was defined in
the General Clauses Act in s. 18 a as follows: Section 18 a " 'Federal
Government' shall(a) in relation to anything done or to be done after the
commencement of Part III of the Government of India Act, 1935, but before the
establishment of the Federation, mean, as respects matters 516 with respect to
which the Governor-General is by and under the provisions of the said Act for
the time being in force required to act in his discretion, the Governor-General
and as respects other matters, the Governor-General in Council; and shall
include(i) in relation to functions entrusted under section 124(1) of the said
Act to the Government of a Province, the Provincial Government acting within
the scope of the authority given to it under that subsection;
and (ii) in relation to the administration of
a Chief Commissioner's Province, the Chief Commissioner acting within the scope
of the authority given to him under section 94(3) of the said Act;".
From these sections it was argued that the
term "Federal Government" in the Government of India Act 1935, only
meant the Governor-General or the Governor-General in Council as the case may
be but under the definition in the General Clauses Act the term "Central
Government" did not only denote the Governor-General or the
Governor-General in Council as the case may be but also included for certain
purposes the Provincial Governments acting within the scope of the authority
given to them under a. 124(1) of the Government of India Act, 1935. This
argument, in our opinion, is wholly fallacious.
The power of the Federal Legislature to
legislate was conferred by s. 100, sub-ss. (1) and (2). The first subsection
deals with the power of the Federal Legislature to legislate in regard to items
contained in the First List which was exclusively within the power of the
Federal Legislature. The Federal Legislature therefore had the power to
legislate in regard to any subject contained in List I and item 54 relating to
taxes on income was in that List. It has been held that the items have to be
given the widest possible amplitude. But it was submitted that the power under
item 54 howsoever wide it may be is subject to the limitation contained in s.
138(1), proviso (b). Now "Federal purposes" is not defined in the
Government of India Act, 1935, nor is it defined in the General 517 Clauses
Act. But there is-sufficient indication in s. 138 itself that the amounts
recovered as surcharge were to form part of the Revenues of the Federation and
such Revenues were to be expended for the purposes there indicated. Under s.
124(4) of the Government of India Act, 1935, where powers and duties are
conferred by s. 124 upon a Province or a Federated State there shall be paia by
the Federation to the Province or the Federated State such sum as may be agreed
Hence by the definitions given in .................. Hence by the given in the General
Clauses Act no different concept of the words "purposes of the Central
Government" was intended from what was intended by the use of the words
"Federal purposes" in s. 138(1)(b) of the Government of India Act,
These petitions therefore fail and are
dismissed with costs.
One hearing fee.