Karimtharuvi Tea Estate Ltd. Vs. State
of Kerala  INSC 298 (15 December 1965)
15/12/1965 SATYANARAYANARAJU, P.
GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N.
CITATION: 1966 AIR 1385 1966 SCR (3) 93
F 1968 SC1213 (8) F 1980 SC 251 (6) R 1987
The Kerala Surcharge on Taxes Act (11 of
1957), s. 2-Whether applicable to the assessment year 1957-58.
For the assessment year 1957-58, the
appellant-company was assessed to agricultural income-tax under the Kerala
Agricultural Income-tax Act,. 1950 and a surcharge was also levied and
collected from the appellant under the provisions of the Kerala surcharge on
Taxes Act, 1957. The appellant appealed to the Deputy Commissioner, objecting
to the imposition of surcharge on the ground that the law applicable to the
assessment for 1957-58, under the provisions of the Agricultural Income-tax
Act,. was the law in force on 1st April 1957, and as the Surcharge Act came
into force only from 1st September 1957 and did not have retrospective effect,
the surcharge could not be levied for that year. The Deputy Commissioner
rejected the objections but the Appellate Tribunal' on further appeal upheld
the contention. The High Court. on a reference,. held against the appellant.
in appeal to this Court,
HELD : The Surcharge Act having come into
force on 1st September1957, and not being retrospective in operation, it could
not be regarded' as law in force at the commencement of the ear of assessment
1957-58.. Since it was not the law in force on let April 19.57, no surcharge
could be levied under it against the appellant in the assessment year 1957-
58.. [98. A-B] Commissioner of Income-tax, Bombay v. Scindia Steam Navigation,
Co. Ltd.  1 S.C.R. 788 and The Commissioner of Sales Tax U.P. v.. The
Modi Sugar Mills,  2 S.C.R. followed.
I.T. Commissioner v. I.S. Lines, A.I.R. 1953
S.C. 439, explained.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 980 of'1964.
Appeal by special leave from the judgment and
order, dated July 25, 1963 of the Kerala High Court in Income-tax Referred Case
No. 10 of 1962 (Agrl.).
M. C. Setalvad, O. P. Mathotra, V. O.
Abraham, J. B.
Dadachanji O. C. Mathur and Ravinder Naraini
for the appellant.
P. Govinda Menon, A. Sreedharan Nambiar and
M. R. Pillai for the respondent.
The Judgment of the Court was delivered by
Satyanarayana Raju, J. This appeal, by special leave, against the judgment and
order of the Kerala High Court, dated July 25, 94 1963 in Income-tax Referred
Case No. 10 of 1962 (Agricultural), raises the question as to the true scope
and operation of s. 2 of the Kerala Surcharge on Taxes Act, 1957 (Ker. Act XI
of 1957), hereinafter called the Surcharge Act.
The facts which have given rise to this
appeal may be briefly stated. For the assessment year 1957-58, the appellant
company was assessed to agricultural income-tax under the Kerala Agricultural
Income-tax Act, 1950. In the assessment, a surcharge at the rate of 5% on the
agricultural income-tax and super was also levied and collected from the
appellant under the provisions of the Surcharge Act.
The appellant appealed to the Deputy
Commissioner of Agricultural Income-tax and Sales Tax, South Zone, Quilon,
objecting to the imposition of surcharge on the ground that the law applicable
to assessment for 1957-58 under the provisions of the Agricultural Income-tax
Act was the law in force on April 1, 1957 and as the Surcharge Act which came
into force only from September 1, 1957 did not have any retrospective effect,
the surcharge could not be levied for that year. By his order, dated November
14, 1959, the Deputy Commissioner rejected these objections.
Thereupon, the appellant preferred a further
appeal to the Kerala Agricultural Income-tax Appellate Tribunal, Trivandrum. By
its order, dated August 2, 1961, the appellate Tribunal upheld the contention
of the appellant holding that the Surcharge Act 'Could not have retrospective
operation unless there was a specific provision therein to that effect.
On the application of the respondent, the
Tribunal stated a case to the Kerala High Court and referred the following
question of law :
"Whether any surcharge can be levied on
the agricultural income-tax payable for the assessment year 1957--58 ?" By
judgment, dated July 25, 1963, the Division Bench of the High Court answered
the question in the affirmative, against the appellant. The appellant then
applied to this Court and obtained special leave to appeal against the judgment
and order of the High Court.
It is contended for the appellant, by Mr.
Setalvad, learned counsel that the Surcharge Act having come into force- on 95
September 1, 1957 and the said Act not being retrospective in operation, it
could not be regarded as law in force at the commencement of the year of
assessment viz. 1957-58. It is, also contended that in the absence of express
enactment or necessary intendment, the provisions of a statute which affect a
right in existence at the time of the passing of that enactment are not to be applied
retrospectively and that the interpretation placed by the High Court on the
scope of sub-s. (3) of s. 1 of the Surcharge Act is erroneous.
Before dealing with these contentions, it
would be convenient to read the material provision of the Surcharge, Act.
Sub-section (3) of s. 1 reads :
"It shall come into force on such date
as the Government may, by notification in the Gazette, appoint." By a
notification, dated August 27, 1957, the Government of Kerala appointed the
first day of September 1957 as the date on which the said Act shall come into
force. By a further notification dated November 28, 1957, the Government of
Kerala, in exercise of the powers conferred on it by s. 6 of that Act notified
that surcharge shall not be levied on assessments on the turnover or income of
the year 1956-57 onwards but that it shall be confined only to assessments made
on or after September 1, 1957 and that where the turnover or income for periods
prior to 1956-57 is pending assessment.. surcharge shall not be levied on such
assess- ments when made. We are not now called upon to determine the validity
of these regulations.
Now, it is well-settled that the Income-tax
Act, as it stands amended on the first day of April of any financial year must
apply to the assessments of that year. Any amendments in the Act which come
into force after the first day of April of a financial year, would not apply to
the assessment for that year, even if the assessment is actually made after the
amendments come into force.
In Scindia Steam Navigation Co. Ltd. v.
Commr. of Inc.
Tax,(1) a Divison Bench of the Bombay High
Court, consisting of Chagla C.J., and Tendolkar J., considered the question as
to the effect of an amendment which came into force after the commencement of a
financial year. The facts in that case were these. The assessee's ship was lost
as a result of enemy action. The (1) 24 I.T.R. 686.
96 Government paid the assessee in 1944 a
certain amount as compensation which exceeded the original, cost of the ship.
The Income-tax Officer included the
difference between the original cost and the written down value of the ship in
the total income of the assessee for the assessment year 1946-
47. The Tribunal upheld that decision and
referred the question,, whether the sum representing the difference between the
original cost and the written down value was properly included in the
assessee's total income computed for the assessment year 1946-47. It was argued
that the fourth proviso to s. 10 (2) (vii) of the Income-tax Act (inserted by the
Amendment Act of 1946 with effect from May 4, 1946) under which the inclusion
of the amount was justified by the department, had no application to the case.
The learned Judges held that as it was the
Finance Act of 1946 that imposed the tax for the assessment year 1946-47, the
total income had to be computed in accordance with the provisions of the
Income-tax Act as on April 1, 1946; that as the amendments made by the
Amendment Act of 1946 with effect from May 4, 1946 were not retrospective, they
could not be taken into consideration merely because the assessee was assessed
after that date; and that the assesses was not liable to pay tax on the sum
because the fourth proviso to s. 10(2) (vii) of the Income-tax Act under which
it was sought to be taxed was not in force in respect of the assessment year
This Court affirmed this decision in
Commissioner of Income- tax, Bombay v. Scindia Steam Navigation Co. Ltd. where
it was stated at p..816 as follows :
"On the merits, the appellant had very
little to say. He sought to contend that the proviso though it came into force
on May 5, 1946, was really intended to operate from April 1, 1946, and he
referred us to certain other enactments as supporting that inference. But we
are construing the proviso. In terms, it is not retrospective, and we cannot
import into its construction matters which are ad extra legis, and thereby
alter its true effect." 'In The Commissioner of Sales Tax, Uttar Pradesh
v. The ModiSugar Mills Ltd.(2) this Court held by a majority as follows:
"A legal fiction must be limited to the
purposes for which it has been created and cannot be extended beyond (2) 
2 S.CR. 189,199 (1)  1 S.C.R. 788: 42 I.T.R. 589.
97 its legitimate field. The turnover of the
previous year is fictionally made the turnover of the year of assessment : it
is not the actual or the real turnover of the year of assessment. By the
imposition of a different tariff in the course of the year, the incidence of
tax liability may competently be altered by the Legislature, but for
effectuating that alteration, the Legislature must devise machinery for
enforcing it against the tax payer and if the Legislature has failed to do so,
the court cannot resort to a fiction which is not prescribed by the Legislature
and seek to effectuate that alteration by devising machinery not found in the
statute." In the instant case, there is no escape from the conclusion that
the Surcharge Act not being retrospective by express intendment, or necessary
implication, it cannot be made applicable from April 1, 1957, as the Act came
into force from September 1, of that year.
The High Court has, however, relied upon a
decision of this Court in I. T. Commissioner v. I. S. Lines(1) where it was
held' as follows :
"It will be observed that we are here
concerned with two datum lines : (1) the 1st of April, 1940, when the Act came
into force, and (2) the 1st of April, 1939, which is the date mentioned in the
amended proviso. The first question to be answered is whether these dates are
to apply to the accounting year or the year of assessment. They must be held to
apply to the assessment year. because in income-tax matters the law to be
applied is the law in force in the assessment year unless otherwise stated or
implied. The first datum line therefore affected only the assessment year of
1940-41, because the amendment did not come into force till the 1st of April
That means that the old law applied to every
assessment year up to and including the assessment year 1939-40." This
decision is authority for the proposition that though the subject of the charge
is the income of the previous year, the law to be applied is that in force in
the assessment year, unless otherwise stated or implied. The facts of the said
decision are different and distinguishable and the High Court was clearly in
error in applying that decision to the facts of the present case.
(1) A.I.R. 1953 S.C. 439, 98 The Surcharge
Act having come into force on September 1, 1957. and the said Act not being
retrospective in operation, it could not be regarded as law in force at the
commencement of the year of assessment 1957-58. Since the Surcharge Act was not
the law in force on April 1, 1957, no surcharge could be levied- under the said
Act against the appellant in the assessment Year 1957-58.
In the result, the appeal is allowed with
costs. Appeal allowed.