Thakurlal vs Income Tax Officer, Ratlam

Dixit, J.—This is an application under Art. 226 of the Constitution of India for the issue of a writ of certiorari to quash an order made on 30th August, 1952 by the Income Tax Officer of Ratlam Circle directing the recovery of the rebate on tax allowed to the petitioner on a sum of Rs. 19,501 in the assessment year 1951-52.

The petitioner states that he is the Karta and Manager of a Joint Hindu family carrying on the business of mining manganese ore in Jhabua district; that the family shifted from Hinganghat (formerly in C.P. but now In Bombay State) to Jhabua sometime in 1949-50, and since then for the assessment year 1951-52 and subsequent years he has been treated as resident and ordinarily resident in Ratlam circle which was a part of the former Madhya Bharat State; that in the assessment year 1951-52 his total income was determined at Rs. 53,225 and he was treated as an assessee falling under Sec. 4 (1) of the Part-B States (Taxation Concessions) Order, 1950 and allowed a rebate in tax under paragraph 6 of the said Order; that in the assessment year 1952-53, the income tax authorities discovered that during the accounting year 1951-52 the petitioner had remitted from what was then Madhya Bharat, a Part-B State, to Hinganghat, situated in former Madhya Pradesh, Part-A State, Rs. 19,501 and that on account of this remittance, the income tax Officer acting under clause (a) of the second proviso to paragraph 6 of the Part-B States (Taxation Concessions) Order, 1950, passed an order on 30th August, 1952, for the recovery of the amount of rebate allowed so the petitioner in the assessment year 1951-52 on a sum of Rs. 19,501. The petitioner contends that the non-applicant had no jurisdiction to make this order under the second proviso to paragraph 6 of the Part-B States (Taxation Concessions) Order. 1950, as at the time of this remittance, the petitioner was not resident in any taxable territory other than Part-B States. On this ground he prays for the issue of a writ of certiorari to quash the order dated 30th August 1952 of the income tax Officer, Ratlam. The applicant had appealed to the Commissioner of income tax against the order dated 30th August, 1952, of the income tax Officer, Ratlam. But his appeal was rejected by the Commissioner on the ground that the income tax Act did not empower him to hear any appeal against an order for the recovery of rebate on tax allowed in a previous assessment.

In the return filed by the non-applicant opposing the petition, it is denied that the petitioner was treated as resident and ordinarily resident in Madhya Bharat in the assessment for the years 1951-52 and 1952-53. It is stated that he was assessed as resident and ordinarily resident in the taxable territories, not particularly as resident and ordinarily resident in Ratlam; that for the purposes of clause (a) of the second proviso to paragraph 6 of the Part-B States (Taxation Concessions) Order, 1950, it is not necessary that the assessee should be residing in taxable territories other than Part-B States at the time of the remittance. It is further averred that no writ of certiorari can be issued for a refund of money; that the petitioner''s remedy is to file a suit and that in any case this petition which was filed on 12th August, 1955, that is seven months after the order passed in appeal by the Commissioner, could not be said to be one filed with due diligence and that the petitioner has disentitled himself from invoking the powers of this Court under Art. 226 of the Constitution on the ground of delay.

The sole question raised in this petition is as to the true construction of clause (a) of the second proviso to paragraph 6 of the Part-B States (Taxation Concessions) Order, 1950. Before referring to the clause and to the arguments addressed by learned counsel appearing for the parties as to its construction, it is necessary to state that the Indian Income Tax was extended to Part-B States, excluding Pepsu, on 1st April, 1950, and to Pepsu on 13th April, 1950. Under Sec. 2 (14-A) of the Act, Part-B States, excluding Pepsu, were included in the definition of ''taxable territories'' from 1st April, 1950. The State of Pepsu was also included in the definition of ''taxable territories'' from 13th April, 1950. Prior to 1st April, 1950, a person residing in Madhya Bharat, a Part-B State comprising of certain former Indian States, was not liable to pay any tax under the Indian Income Tax Act unless he was at the same time ''a resident in the taxable territories'' within the meaning of Sec. 4-A and the definition of ''taxable territories'' as it then stood. The income accruing or arising in Indian States, which later on became Part-B States to a resident in the taxable territories was exempt from any tax under Sec. 14 (2) (c) of the Act. The income became liable to tax only if it was received or deemed to be received in or brought into the taxable territories in the previous year. It also became liable to tax if it was remitted into the taxable territories in a subsequent year (vide Sec. 17 (4) of the Act). The income accruing in Part-B States, comprising of Indian States to an assessee resident in the taxable territories had, however, to be included in his total income under Sec. 16 (1) (a) for the purpose of determining the rate applicable to his taxable income. The broad effect of these provisions was that before 1st April 1950, income accruing in a Part-B State to an assessee resident in the taxable territories was not assessable to charge under the Income Tax Act, so long as it was not brought into the taxable territories. In many Indian States there was no income tax--and in some, where it existed, the rate of tax was much lower than the rate of tax under the Indian Income Tax Act. When, therefore, the Indian Income Tax Act was extended to Part-B States, the Legislature thought it proper to soften the rigor of the full application of the provisions of the Act by giving certain concessions and exemptions for the first few years to certain class of assessee in respect of the income, profits and gains accruing or arising in Part-B States. These concessions are set out in the Part-B States (Taxation Concessions) Order, 1950.

The provisions of the Order which are material here are contained in paragraphs 4 and 6 of the Order. Paragraph 4, while dealing with the scope of the main concessions, provides that the provisions of paragraphs 5, 6, 11 (1), 12 and 13 of the Order shall apply "in the case of an assessee who has been assessed or is assessable in the taxable territories as resident for three out of the six years of assessment commencing on the first day of April, 1944, and ending on the 31st day of March, 1950, to so much of the income, profits and gains included in his total Income as would, had the assessee been resident also in the relevant previous year in the taxable territories other than Part-B States, have been exempted under clause (c) of sub-sec. (2) of Sec. 14 of the Act, if it had not been extended to Part-B States." Paragraph 6 of the Order reads as follows:--

The income, profits and gains of any previous year ending after the 31st day of March, 1949, which does not fall within paragraph 5 of this Order shall be assessed under the Act for the year ending on the 31st day of March, 195), or on the 31st day of March 1952, as the case may be, and the tax payable thereon shall be determined as hereunder:--

In respect of so much of the income, profits and gains included in the total income as accrue or arise in any State other than the States of Patiala and East Punjab States Union and Travancore-Cochin--

(i) the tax shall be computed (a) at the Indian rate of tax and (b) at the State rate of tax in force immediately before the appointed day;

(ii) Where the amounts of tax computed under sub-clause (a) of clause (1) is lest ban or is equal to the amount of tax computed under sub-clause (b) of clause (1), the amount of the first mentioned tax shall be the tax payable;

(iii) where the amount of tax computed under sub-clause (a) of clause (i) exceeds the tax computed under sub-clause (b) of clause (i), the excess shall be allowed as a rebate from the first mentioned tax and the amount of the first mentioned tax as so reduced shall be the tax payable.

It will be seen that paragraph 4 (1) (i) refers to years of assessment commencing on 1st April, 1944, and ending on 31st March 1950. During this period the Indian Income Tax Act was not in force in Indian States which later on became Part-B States. When, therefore, paragraph 4 (1) (i) speaks of an assessee "who has been assessed or is assessable in taxable territories as resident", the reference is necessarily to an assessee resident in Part-A States as taxable territories. The reference in paragraph 4 (1) (i) to Sec. 14 (2)(c) with the supposition about the assessee as resident in taxable territories other than Part-B States, makes it clear that the benefit of the concessions stated in paragraph 6 is available to an assessee falling within paragraph 4 (1) (i) only in respect of that much income, profits and gains which accrued or arose to him in a Part-B State and which were not brought or received in the year in which they accrued or arose in the taxable territories other than Part-B States. In other words, the concession is available in respect of income accruing or arising in a Part-B State only so long as the income remains where it accrued and is not remitted to or received in any other part of the taxable territories as defined in regard to the period after 1st April, 1950. It must be noted that the availability of the concession under paragraph 6 to an assessee falling under paragraph 4 (1) (i) does not depend on his being a resident in the taxable territories comprising of Part-B States. If the assessee is resident in the taxable territories, no matter whether the taxable territory is a part-B State or a Part-A State, and if the income, profits and gains which accrued to him In a Part-B State remained where they accrued and were not brought into a Part-A State, the assessee could claim the benefit of the concession. It follows therefore that if the assessee brought the income into the taxable territories other than Part-B States in the very year when it accrued or arose, then that income would be liable to tax according to the Indian rate of tax, irrespective of the part of the taxable territories in which the assessee was resident in the relevant previous year. The petitioner was treated as an assessee falling under paragraph 4 (1)(i) and given accordingly the benefit of the concession stated in paragraph 6 in respect of the income which accrued to him in 1950 51 In Madhya Bharat as that income was not remitted to a Part-A State in the year of its accrual. If the petitioner had remitted that income to Hinganghat, that is to a Part-A State in 1950-51 then the income would have been liable to tax at the Indian state of tax whether the assessee was resident in Part-A State as a taxable territory or a Part-B State as a taxable territory.

The rebate allowed to the petitioner in the assessment year 1951-52 on Rs. 19,501, a part of the Income which accrued to him in Madhya Bharat and which remained there, was however ordered to be recovered by the Income tax authorities under clause (a) of the second proviso to paragraph 6 on the ground that the petitioner remitted the amount to Hinganghat in the subsequent year. Clause (a) of the proviso is as follows:--

Provided further that in the case of an assessee referred to in clause (i) or clause (ii) of sub-paragraph (1) of paragraph 4 of this Order If the whole or part of such income, profits or gains on which rebate is due or has been allowed under this paragraph--

(a) are brought into or received in the taxable territories other than Part-B States in any subsequent year in which the assessee is resident, the rebate already allowed appropriate to the amount so brought or received shall be recovered in addition to the tax payable on the total income of that year...

The petitioner does not dispute that Rs. 19,501, a part of the Income which accrued to him in Madhya Bharat, was remitted to Hinganghat in the assessment year 1951-52. The contention advanced on his behalf, by Mr. Sanghi Is that in clause (a), the expression "in any subsequent year in which the asses see to resident", must be read as "in any subsequent year in which the ''asses see is resident in the taxable territories other than Part-B States", and so read the essential condition for the recovery of the rebate already allowed under paragraph 6 is that at the time of the remittance of the amount on which rebate bad been allowed to the taxable territories, the assessee must be resident In the taxable territories other than Part-B States. It was said that in the year in which the amount of Rs. 19,501 was sent to Hinganghat the petitioner was resident in Madhya Bharat, a Part-B State, and not in a taxable territory other than Part-B State. The contention of Mr. Shastri, learned counsel appearing for the Department was that the word "resident" in clause (a) only meant ''resident in the taxable territories" as defined in Sec. 4-A of the Indian Income Tax Act and anywhere in taxable territories" as defined in Sec. 2 (14) of the Act. Learned counsel for the department pointed out that in the Act wherever it was intended to specify Part-A State as Taxable territory the ex press ion used was "taxable territory other than Part-B State" and that on the other hand where the reference was intended to be made to the entire taxable territories, the Act merely used the words "resident" or "resident in taxable territories".

I do not find myself able to accede to the construction sought to be put by the learned counsel for the petitioner on the word "resident" occurring in clause (a) of the second proviso. To my mind, there is no justification 2 restricting the meaning of the word "resident" as used in clause (a)The word "resident" must be understood in the sense given in Sec. 4.A of the Act. It is true that Sec. 4-A explains the meaning of the term "resident in the taxable territories". But then the Act nowhere gives the definition of the words "residing" or "resident" or "residence" in abstract. For the purposes of the Act, the significance of the words "residing" or "residence" "resident" is only by reference to taxable territories. That being so, the word "resident." occurring In clause (a) of the second proviso must be construed according to the import and meaning given to it by Sec. 4-A, To accept the construction suggested by the learned counsel for the petitioner of the word "resident" would amount to interpolating into the plain words of clause (a), words which are not there. I think support for Mr. Shastri''s contention (quite apart from the prima facie meaning attached to the word "resident" by Sec. 4-A) is also to be found in the structure of the Act. The normal dichotomy in the Income Tax Act is between person resident in the taxable territories and person not resident in the taxable territories. I use the word "normal" to show that I have not overlooked the division of "residents" according to whether they are "ordinarily residents or not." But that distinction is not one wholly between resident and non-resident. Under the Act the incidence of tax depends upon and is determined by the question whether the assessee is resident in the taxable territories. It does not depend on the assessee being resident in any particular part of the taxable territories. The word "resident" has been used in clause (a) to emphasize the fact that for the recovery of the rebate allowed on an income which is brought into or received in the taxable territory other than Part-B State in any subsequent year, it is essential that the assessee must be resident somewhere in the taxable territories in that subsequent year. The words "in which" have reference to "any subsequent year" and not to "the taxable territories other than Part-B States". Moreover if, as I have endeavored to point out above, the concession mentioned in paragraph 6 cannot be availed of by an assessee if the income accruing or arising in Part-B State is remitted to a Part-A State in the very year of its accrual, no matter whether the assessee is resident in the taxable territory comprising of Part-B State or of Part-A State, then it is difficult to understand why for the revocation of the rebate and its recovery on account of the remittance of income in any subsequent year it should be necessary that the assessee must at the time of remittance be resident in the taxable territory other than Part-B State where the income accrued. Mr. Sanghi, learned counsel for the petitioner, though at first inclined to say that the relief under paragraph 6 could not be denied to the assessee even if he had remitted the income accrued to him in a Part-B State, in the very year of its accrual to a taxable territory other than Part-B State if the assessee was not a resident in the taxable territory other than Part-B State, later on conceded that the assessee would be liable to pay on the amount thus remitted tax at the Indian rate even if he had been resident in the taxable territory comprising of Part-B State. In my judgment the words of clause (a) of the second proviso construed in the light of the meaning of the word "resident" as given in Sec. 4-A, in its context and against the background of the provisions of the Indian Income Tax Act relating to the circumstances under which the income accruing or arising in Indian States became liable to tax when it was brought into taxable territories in the year of its accrual or in any subsequent year, can only properly be construed in the sense contended for by the Department. On that construction the Department is competent to recover the rebate allowed to the petitioner in respect of Rs. 19,501 in the assessment year 1951-52 when the amount was remitted that year to Hinganghat, irrespective of the question whether the petitioner was resident in the taxable territories comprising of Part-B States or of Part-A State. The order passed by the Income Tax on 30th August, 1952, for the recovery of the rebate cannot, therefore, be assailed as one being made by the Income Tax Officer without jurisdiction on the ground that at the time of remittance the applicant was not resident in the taxable territories other than Part-B States.

In this view of the matter, it is not necessary to consider the contentions raised by the learned counsel for the opponent as regards the delay in filing the petition and the alternative remedy available to, the applicant. It must, however, be noted that from the order passed by the Income Tax Officer as regards the recovery of the rebate, it appears that the petitioner never urged before the Income Tax Officer the ground that under clause (a) of the second proviso to paragraph 6 the recovery of the rebate could not be ordered as the petitioner was not resident in the taxable territories other than Part-B States in the year of remittance. All that was said before the Income Tax Officer was that the remittance of Rs. 19,501 was a transfer of a part of capital and not of profits. The petition could, therefore, have been dismissed J on the short ground that the petitioner could not be allowed to raise an objection to the jurisdiction of the Income Tax Officer to make an order of the recovery of rebate when no objection had been taken before the Income Tax Officer himself. See Ambaram vs. Gumonsingh (1957 JLJ 65).

For the foregoing reasons I would dismiss this petition with costs. Counsel''s fee is fixed at Rs. 100.

Samvatsar, J.

I agree.