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Monday, March 23, 2015

the validity of an explanation added retrospectively to Section 26(4) of the Karnataka Agricultural Income Tax Act (hereinafter referred to as 'Act').

                                                                'REPORTABLE'
                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION


                     CIVIL APPEAL NOS. 8617-8635 OF 2003


ASSISTANT COMMISSIONER OF
AGRICULTURAL INCOME TAX & ORS.               ...Appellants

                                   VERSUS

M/S. NETLEY 'B' ESTATE & ORS.                 ...Respondents



                               J U D G M E N T

R. F. NARIMAN, J.


            The present set of appeals are concerned with  the  validity  of
an explanation added retrospectively  to  Section  26(4)  of  the  Karnataka
Agricultural Income Tax Act (hereinafter referred to as 'Act').

            On facts, the present appeals are concerned with the  assessment
of agricultural income received by a firm after it is dissolved  insofar  as
the income of the firm pertains to actual cash receipts after  the  firm  is
dissolved but relating to income earned prior to dissolution.

            Section 26 of the Act reads as follows: -
"26. Assessment in case of discontinued company, firm or association  -  (1)
where agricultural income is received by a company, firm or  association  of
persons  and  the  business  through  which  such  income  is  received   is
discontinued in any year, an assessment may be made  in  that  year  on  the
basis of the agricultural income received during the period between the  end
of the previous year and the date of the such  discontinuance,  in  addition
to the assessment, if any, made on the  basis  of  the  agricultural  income
received in the previous year.
(2)    Any  person  discontinuing  any  such  business  shall  give  to  the
Agricultural Income-tax officer notice of such discontinuance within  thirty
days thereof and where any person fails to give the notice required by  this
sub-section, such officer may direct that a sum shall be recovered from  him
by way of penalty  not  exceeding  the  amount  of  agricultural  income-tax
subsequently assessed on him in respect of any agricultural  income  of  the
company,  firm  or  association  of  persons  up  to   the   date   of   the
discontinuance of the business.
(3)   Where  an  assessment  is  to  be  made  under  sub-section  (1),  the
Agricultural  Income-tax  officer  may   service   on   the   person   whose
agricultural income is to be assessed, or, in the case  of  a  firm  on  any
person who was a member of such firm at the time of the  discontinuance  or,
in the case of a  company,  on  the  principal  officer  thereof,  a  notice
containing all or any of the requirements which may be included in a  notice
under sub-section (2) of section 18 and the provisions of  this  Act  shall,
so far as may be, apply accordingly as if the notice were  a  notice  issued
under that sub-section."


            Sub-section (4) was added to Section 26  by  amendment  in  1987
and reads as follows: -
"Where any  business  through  which  agricultural  income  is  received  is
discontinued in any year, any sum received after  the  discontinuance  shall
be deemed to be the income of the recipient and charged to  tax  accordingly
in the year of receipt, if such sum would have been included  in  the  total
income of the person who carried on the business had such sum been  received
before such discontinuance."


            Section 27 with which we are also concerned reads as follows: -
"27. Liability in case of discontinued firm or association - (1)  where  the
business of a firm or association of persons is discontinued  or  such  firm
or association is dissolved,  the  Assistant  Commissioner  of  Agricultural
Income-Tax shall make the assessment of the agricultural income of the  firm
or association of persons as if no such discontinuance  or  dissolution  has
taken place and all the provisions relating to the levy of  penalty  or  any
other sum chargeable under any provisions of this Act shall  apply,  so  far
as may be, to such assessment.
(2)    Every  person  who  was  at  the  time  of  such  discontinuance   or
dissolution, a partner of such firm or a member of such association and  the
legal representative of any such person who is deceased,  shall  be  jointly
and severally liable to the assessment on such agricultural income and  also
to pay the amount of agricultural income-tax, penalty or other  sum  payable
and all the provisions of this Act, so far as may  be  shall  apply  to  any
such assessment or imposition of penalty or other sum."


            From a cursory reading of section 26(4) read  with  section  27,
it becomes clear that any sum received after discontinuance of  business  by
a firm is deemed to be the income  of  the  recipient  and  charged  to  tax
accordingly, if such sum would have been included in  the  total  income  of
the person who carried on the business had such  sum  been  received  before
such discontinuance.  Section 27 went one step further  and  also  spoke  of
income of a firm which is dissolved as opposed to a firm whose business  had
been discontinued.  With respect to such income, every person  who  was,  at
the time of discontinuance or  dissolution,  a  partner  of  such  firm  was
liable to be jointly or severally assessed on such  agricultural  income  as
also to pay the same by way of tax penalty, etc.

            In L.P. Cardoza and others v. Agricultural  Income  Tax  Officer
and others [(1997) 227 ITR 421], the question involved was as to  whether  a
dissolved firm could be assessed to agricultural income tax after  the  date
of its dissolution in respect of income received for supply  of  goods  made
by the firm prior to its dissolution.  This question arose in the  light  of
Section 26(4) and Section 27 as they then stood, that is, as they  stood  in
1987.  The question  was  answered  by  the  Bench  after  setting  out  the
aforesaid provisions as follows: -
            "We are, therefore, unable to hold that  under  section  27  the
dissolved firm could be deemed to be in existence for purpose of  assessment
in respect of the income derived after the date of dissolution of the  firm.
 In fact in W.P. No. 2397 and 2398 of 1988 that is the  view  taken  by  the
Karnataka Appellate Tribunal and it is on that ground the assessment  orders
were set aside.
            The next point to be considered is  whether  section  26(4),  as
amended by Act 10 of 1987, could be of any help to the respondent.
            Learned counsel  for  the  petitioners  contended  that  section
26(4) applies only to a case of discontinuance of the business and not to  a
case of dissolution of  the  firm,  that  section  27  makes  a  distinction
between discontinuance of a business and dissolution of the firm,  and  that
as such section 26(4) does not apply to a case of dissolution of  the  firm.
It is no doubt true that discontinuance of  business  need  not  necessarily
imply dissolution of the firm.   A  firm  may  continue  to  exist  but  may
discontinue carrying  on  a  particular  business.   But  where  a  firm  is
dissolved it necessarily involves discontinuance of business.   As  such  it
cannot be said that section 26(4) cannot be applied as it does not refer  to
dissolution of the firm, but what we are concerned  with  is  as  t  whether
this provision creates any legal fiction regarding the  continuance  of  the
firm notwithstanding its dissolution for purposes  of  assessing  an  income
received after the dissolution.  All that this provision lays down is  that,
any sum received after the discontinuance of business shall be deemed to  be
the income of the "recipient" and charged to tax in the year of receipt,  if
such sum would have been included in the total  income  of  the  person  who
carried  on  the  business  had  such  sum   been   received   before   such
discontinuance.  Explaining  this  provision  the  Division  Bench  of  this
Court, in E.M.V. Muthappan's case (1990) 184 ITR 161, has pointed  out  that
since  the  sale  proceeds  received  is  income  relating  to  agricultural
activity carried on during the earlier years, it must be deemed  to  be  the
income of the recipient, as the original assessee is  no  longer  continuing
the business and, therefore, is liable to tax in the year of receipt in  the
hands of the  recipient.   It  is,  therefore,  clear  that  this  provision
applies to a case where the person carrying on the business discontinues  it
and the income due to him, he being the original assessee,  is  received  by
another after the discontinuance of the business.  In such  a  case,  income
received by the recipient could be charged to tax in the  year  of  receipt.
There is nothing in this provision  to  indicate  that  where  the  firm  is
dissolved and some income is received after the dissolution  in  respect  of
agricultural produce supplied by the firm before its dissolution,  the  firm
itself could be assessed in the year of receipt  of  income  notwithstanding
its dissolution."

            On  a  reading  of  this  judgment,  two  things  become  clear.
Section 27 of the Act would not help in answering the  question  before  the
Court as a firm after dissolution has no existence in the  eye  of  law  and
cannot for that reason be an assessee.  Secondly,  Section  26(4)  also  did
not help for the self same reason and  also  because  it  referred  to  only
discontinuance of business of a firm as opposed to dissolution of a firm.

            The court specifically held that there was  nothing  in  Section
26(4) as it then stood or Section 27 to indicate  that  where  the  firm  is
dissolved  and  income  is  received  after  dissolution   in   respect   of
agricultural produce supplied by  the  firm  before  dissolution,  the  firm
itself could be assessed in the year of receipt  of  income  notwithstanding
its dissolution.

            Faced with this  decision  of  the  Karnataka  High  Court,  the
legislature amended Section  26(4)  retrospectively  that  is,  with  effect
from, 01.04.1975.  The amended provision now reads as follows: -
      "26(4)     Where any business through  which  agricultural  income  is
received by a company, firm or association of  persons  is  discontinued  or
any such firm or association is dissolved in  any  year,  any  sum  received
after the discontinuance or dissolution shall be deemed to be income of  the
recipient and charged to tax accordingly in the year  of  receipt,  if  such
sum would have been included in the total income of the person  who  carried
on the business had such sum been received  before  such  discontinuance  or
dissolution.                Explanation: - For the removal of doubts, it  is
hereby declared that where before the discontinuance  of  such  business  or
dissolution of a  firm  or  association  hitherto  assessed  as  a  firm  or
association, or as the case may be, on the company, the  crop  is  harvested
and disposed of, but full payment has not been received for  such  crop,  or
the crop is harvested and not disposed of, the income from such crop  shall,
notwithstanding the discontinuance  or  dissolution  be  deemed  to  be  the
income of the company, firm or association for the year or  years  in  which
it is received or receivable and the firm or association shall be deemed  to
be in existence, for such year or years and such income  shall  be  assessed
as the income of the company, firm or association according  to  the  method
of  accounting  regularly   employed   by   it   immediately   before   such
discontinuance or dissolution."

            It will be noticed  that  in  the  amended  Section  26(4),  two
changes are made.  Whereas in the original provision, no  express  reference
was  made  to  companies  or  associations  of  persons,  and  no  reference
whatsoever was made to a dissolved firm, both have now been added.   By  the
explanation, which is for the removal of doubts,  the  legislature  declares
that where before dissolution of a firm, full payment  is  not  received  in
respect   of   income   that   has   been   earned   pre-dissolution,   then
notwithstanding such dissolution, the said income will be deemed to  be  the
income of the firm in the year in which it is  received  or  receivable  and
the firm shall be deemed to be in existence for such year for  the  purposes
of assessment.  It will be noticed that by this amendment, the basis of  the
law as it stood when Cardoza's case was decided has been changed.

            Cardoza's case noticed that there was no deeming procedure  that
continued a firm that had been dissolved to be an assessee for the  purposes
of  income  that  was  earned  by  it  pre-dissolution  but  received  post-
dissolution.   The  deeming  fiction  has  now  been   introduced   by   the
explanation (and with retrospective effect  from  1975)  thereby  making  it
clear that the basis of the law as it stood when Cardoza's case was  decided
has now been changed with effect from 1975.  The position  which  therefore,
emerges is that instead of such income being  taxed  at  the  hands  of  the
"recipient", it is now taxed in the hands of the dissolved firm.

            The said amendment was the subject matter of challenge before  a
learned Single Judge of the High  Court  of  Karnataka.   The  Single  Judge
repelled the challenge basically on the ground  that  the  explanation  only
clarified the main provision and  therefore  did  not  go  beyond  the  main
provision.  Equally, since the legislature  has  the  right  to  amend  both
prospectively and retrospectively, all that was done  in  the  present  case
was an exercise of  legislative  power  retrospectively  and  therefore,  no
question arose of any  discrimination  on  this  count.   The  Single  Judge
therefore, dismissed the writ petitions before him.

            In appeal before the Division Bench, the Division Bench set  out
all the aforesaid provisions and ultimately found,  following  the  judgment
in D. Cawasji and Co., Mysore v. State of Mysore and  another  [1984  (Supp)
SCC 490], that the amending Act of 1997 suffered  from  the  vice  that  was
found in Cawasji's  case,  namely  that  it  interfered  directly  with  the
judgment of a High Court and would therefore, have  to  be  struck  down  as
unconstitutional on this  score  alone.   This  the  Division  Bench  found,
because, according to the Division Bench, in the statement  of  objects  and
reasons for the  1997  amendment,  it  was  held  that  the  object  of  the
amendment was to undo the  judgment  of  the  High  Court  of  Karnataka  in
Cardoza's case.

            Revenue is in appeal before us.  It was argued  by  the  learned
counsel  that  the  factual  situation  in  Cawasji's  case  was  completely
different  from  the  factual  situation  in  the  present  case  and   that
therefore,  Cawasji's  case  being  distinguishable,  cannot  be   followed.
Learned counsel also referred to  various  other  judgments  which  we  will
advert to a little later.  To buttress this submission,  he  said  that  all
that was done on the facts in the present  case  was  that  the  legislature
retrospectively changed  the  basis  of  the  law  of  assessment  of  firms
regarding income received after they  were  dissolved,  which  is  something
that the legislature is competent to do.

            Learned counsel for the assessees, on the other hand,  tried  to
support the judgment.  In addition, it was argued that since there  was,  in
fact, no lacuna to be  cured,  the  legislative  exercise  of  retrospective
amendment undertaken would be bad as there was no necessity  for  the  same.
It was also  argued  that  an  explanation  cannot  defeat  the  substantive
provision to which it is attached and  the  present  explanation  therefore,
being beyond the main  provision,  is  also  bad.   He  also  cited  certain
decisions which we will advert to.

            First, the decision in Cawasji's case.  The question which  fell
for decision in Cawasji's case was a retrospective  amendment  made  to  the
Mysore Sales Tax Act, 1957, in which sales tax  was  retrospectively  raised
from 6 per cent to 45  per  cent.   Notwithstanding  any  judgment  to  the
contrary, even though collection of sales tax has been struck  down  on  the
ground that excise duty, education cess and health cess could not have  been
included in the price of arrack sold, yet such tax  will  be  deemed  to  be
validly levied and collected in accordance  with  law.   The  ratio  of  the
decision emerges from paragraph  18  of  the  judgment  which  his  set  out
hereinbelow: -
      "In the instant case, the State instead of  remedying  the  defect  or
removing the lacuna has by the impugned amendment sought to raise  the  rate
of tax from 6  per cent to 45  per  cent  with  retrospective  effect  from
April 1, 1966  to  avoid  the  liability  of  refunding  the  excess  amount
collected and has further  purported  to  nullify  the  judgment  and  order
passed by  the  High  Court  directing  the  refund  of  the  excess  amount
illegally collected by providing that the levy at the higher rate of 45  per
cent will have retrospective effect from April 1,  1966.   The  judgment  of
the High Court declaring the levy of sales tax  on  excise  duty,  education
cess and health cess to be bad become  conclusive  and  is  binding  on  the
parties.  It may or may not have been competent for  the  State  Legislature
to validly remove the lacuna and remedy the defect in the  earlier  levy  by
seeking to impose sales tax through any amendment on excise duty,  education
cess and health cess; but, in  any  event,  the  State  Government  has  not
purported to do so through the Amending Act.  As a result  of  the  judgment
of the High Court declaring such levy illegal, the State became  obliged  to
refund the excess amount wrongfully and illegally  collected  by  virtue  of
the specific direction to that effect in the earlier judgment.   It  appears
that the only object of enacting the amended provision  is  to  nullify  the
effect of the judgment which became conclusive and binding  on  the  parties
to  enable  the  State  Government  to  retain  the  amount  wrongfully  and
illegally collected as sales tax and this  object  has  been  sought  to  be
achieved by the impugned amendment which does not even purport  or  seek  to
remedy or remove the defect and lacuna but merely raises the  rate  of  duty
from 6  per cent to 45  per  cent  and  further  proceeds  to  nullify  the
judgment and order of the High Court.  In our opinion,  the  enhancement  of
the rate of duty from 6  per cent to 45 per cent with retrospective  effect
is in the  facts  and  circumstances  of  the  case  clearly  arbitrary  and
unreasonable.  The defect or lacuna is not even sought to  be  remedied  and
the only justification for the steep  rise  in  the  rate  of  duty  by  the
amended provision is to nullify the effect of  the  binding  judgment.   The
vice of illegal collection in the absence of the removal of  the  illegality
which led to the invalidation of the earlier assessments  on  the  basis  of
illegal levy, continues to taint the earlier levy.  In our opinion, this  is
not a  proper  ground  for  imposing  the  levy  at  the  higher  rate  with
retrospective effect.  It may be open to the Legislature to impose the  levy
at the higher rate with  prospective  operation  but  levy  of  taxation  at
higher rate which really amounts to imposition  of  tax  with  retrospective
operation has to be justified on proper and cogent grounds.  This aspect  of
the matter does not appear to have been  properly  considered  by  the  High
Court and the High Court in our view was not right in holding that  "by  the
enactment of Section 2 of the impugned Act the very basis of  the  complaint
made by the petitioner before this Court in the  earlier  writ  petition  as
also the basis of the decision of this  Court  in  Cawasji  case   that  the
State is collecting amounts by way of tax in excess of what  was  authorised
under the Act has been removed."  We, accordingly, set  aside  the  judgment
and order of the High Court to the extent it upholds  the  validity  of  the
impugned amendment with retrospective effect from April 1, 1966 and  to  the
extent it seeks to nullify the earlier  judgment  of  the  High  Court.   We
declare that Section 2 of the impugned  amendment  to  the  extent  that  it
imposes the higher levy of 45 per cent with retrospective effect from  April
1, 1966 and Section 3 of the impugned Act seeking to  nullify  the  judgment
and order of the High Court are invalid and unconstitutional."


            It is clear from this judgment that two reasons were  given  for
striking down the retrospective levy.  The first reason given was  that,  in
the facts and circumstances of the case, retrospectively  enhancing  of  the
levy of duty from 6  per cent to 45 per cent is  in  itself  arbitrary  and
unreasonable.  The second reason given is that the defect  or  lacuna  found
by the High Court is not sought to be remedied and  the  only  justification
for the steep rise in the rate of duty  is  to  nullify  the  effect  of  an
earlier binding judgment.  It was held that the vice of  illegal  collection
in  the  absence  of  the  removal  of  the  illegality  which  led  to  the
invalidation of the earlier levy continued to taint the earlier levy.

            This judgment is wholly distinguishable from the  facts  in  the
present case.  All that has been done in the present case is to  remove  the
basis of the law as it stood in 1987  which  was  interpreted  in  Cardoza's
case as leading to a particular result.  All that the legislature  has  done
in the present case is to say that with effect  from  01.04.1975,  dissolved
firms will by legal fiction, continue to be assessed, for  the  purposes  of
levy and collection of agricultural income  tax,  insofar  as  they  receive
income post dissolution but relating to  transactions  pre-dissolution.   In
no manner has the  legislature  in  the  present  case  sought  to  directly
nullify the judgment in Cardoza's case.  All that has happened is  that  the
legal foundation on which the Cardoza's case was  built  is  retrospectively
removed, something which is well within the legislative  competence  of  the
legislature.

            In Sri Ranga Match Industries and others v. Union of  India  and
others [1994 (Suppl.) 2 SCC 726], this court dealt with the  same  situation
of  a   retrospective   validation   of   a   statute   otherwise   declared
unconstitutional.  Cawasji's case which was relied upon  there  (as  it  has
been relied upon in the present case) was  distinguished  in  the  following
terms: -
"At this stage, it would be appropriate to deal with the  decision  of  this
Court in D. Cawasji & Co., Mysore v. State of Mysore on which  too  reliance
was placed by Shri Vaidyanathan, learned counsel for the  appellants,  Sales
tax on liquor was levied at 6 %.  The Government was collecting it  on  the
entire sale price of arrack.  However, in a batch of  writ  petitions  filed
by the licensees, the Karnataka High Court held that the levy of  sales  tax
on excise duty and cesses component of the sale price was  incompetent.   In
other words, it was held that sales tax can be  levied  only  on  the  price
proper but not upon excise duty and cesses  which  form  part  of  the  sale
price.  The said judgment of the High Court was  questioned  in  this  Court
but later on the Government withdrew the appeal, with the  result  that  the
judgment of the High Court became final.  With a view to nullify claims  for
refund, the Karnataka Legislature intervened and amended  the  Mysore  Sales
Tax Act with retrospective effect.  The amending Act enhanced  the  rate  of
tax from 6 % to 45 % which meant that the Government need  not  refund  any
amount to the licensees pursuant to  the  aforesaid  judgment  of  the  High
Court.  The Amendment Act was questioned in the High Court but  was  upheld.
On Appeal, this Court held the Amendment Act unconstitutional.  On  a  close
reading of the judgment, it is clear that the main ground on which  the  Act
was held to be incompetent was that raising the rate of tax  from  6  %  to
45% with retrospective effect was "clearly arbitrary and unreasonable"  and,
therefore, violative of Articles 14 and 19.  It was  observed  that  instead
of  removing  the  defect/lacuna  pointed  out  by  the  High   Court,   the
legislature sought to raise the  rate  of  tax  steeply  with  retrospective
effect and that it was bad.  The judgment cannot  be  read  as  laying  down
that in no event can the legislature seek to  render  the  judgment  of  the
Court ineffective and inoperative by amending or rectifying  the  defect  or
the lacuna pointed out, on the basis of which  the  judgment  was  rendered.
In my  opinion,  therefore,  the  said  judgment  cannot  be  understood  as
supporting the appellant's submission nor  can  it  be  read  as  militating
against the well-accepted power of Parliament which has been  reiterated  in
innumerable judgments of this Court."

            In the Indian Aluminium Co. and others v. State  of  Kerala  and
others [(1996) 7 SCC 637], there is a long discussion coupled with  a  large
number of judgments on  validation acts.  Cawasji's case was dealt  with  in
para 52 in the following terms:
      "In D. Cawasji & Co. v. State of Mysore  the  High  Court  in  a  writ
filed by the appellant had held that the  State  Government  was  devoid  of
power under Section 19 of the Sales Tax Act to collect sales tax and  excise
duty which is not a part of the selling  price.   Mandamus  for  refund  was
issued.  Appeal filed  in  this  Court  was  withdrawn  and  the  Sales  Tax
(Amendment) Act was enacted enhancing sales tax from original 6 per cent  to
45 per cent with retrospective effect.  Section  3  validated  the  previous
assessments.  This Court struck down the amendment so far as it  related  to
retrospectivity pointing out that the lacuna pointed out by  the  court  was
not  cured  and  the  judgment  could  not  be  nullified   by   legislative
amendment."


            Finally, a number of principles were laid down  in  para  56  as
follows: -
            "From a resume of the above decisions the  following  principles
would emerge:
(1)   The adjudication of  the  rights  of  the  parties  is  the  essential
judicial function.  Legislature has to lay down  the  norms  of  conduct  or
rules which will govern the parties and the  transactions  and  require  the
court to give effect to them;
(2)   The Constitution delineated delicate balance in the  exercise  of  the
sovereign power by the legislature, executive and judiciary;
(3)   In a democracy governed by rule of law, the legislature exercises  the
power under Articles 245 and 246 and other companion articles read with  the
entries in the respective lists in the Seventh  Schedule  to  make  the  law
which includes power to amend the law.
(4)   Courts in their concern  and  endeavour  to  preserve  judicial  power
equally must be guarded to maintain the  delicate  balance  devised  by  the
Constitution between the three sovereign functionaries.  In order that  rule
of law permeates to fulfil  constitutional  objectives  of  establishing  an
egalitarian social order, the respective sovereign functionaries  need  free
play in their joints so that the march of social progress and order  remains
unimpeded.   The  smooth  balance  built  with  delicacy  must   always   be
maintained;
(5)   In its anxiety to safeguard judicial power, it is  unnecessary  to  be
overzealous  and  conjure  up   incursion   into   the   judicial   preserve
invalidating the valid law competently made;
(6)   The court, therefore, needs to carefully scan the  law  to  find  out;
(a) whether the vice pointed out by the court  and  invalidity  suffered  by
previous  law  is  cured  complying  with  the  legal   and   constitutional
requirements; (b) whether the legislature has  competence  to  validate  the
law; (c)whether such validation is consistent with the rights guaranteed  in
Part III of the Constitution.
(7)   The court does not have the power to validate an  invalid  law  or  to
legalise impost of tax illegally made and collected or to  remove  the  norm
of invalidation or provide a remedy.  These are not judicial  functions  but
the  exclusive  province  of  the  legislature.   Therefore,  they  are  not
encroachment on judicial power.
(8)   In exercising legislative power, the legislature by mere  declaration,
without anything more,  cannot  directly  overrule,  revise  or  override  a
judicial decision.  It can render judicial decision ineffective by  enacting
valid law on the topic within its legislative field  fundamentally  altering
or  changing  its  character  retrospectively.   The  changed   or   altered
conditions are such that the previous decision would not have been  rendered
by the court, if those conditions had existed at the time of  declaring  the
law as invalid.  It is  also  empowered  to  give  effect  to  retrospective
legislation with a deeming date or with effect from a particular date.   The
legislature can change the character of the tax or duty  from  impermissible
to permissible tax but the tax or levy should answer such character and  the
legislature is competent to recover the invalid tax validating  such  a  tax
on removing the invalid base for recovery from the  subject  or  render  the
recovery from the State ineffectual.  It is competent  for  the  legislature
to enact the law with retrospective effect and  authorise  its  agencies  to
levy and collect the  tax  on  that  basis,  make  the  imposition  of  levy
collected  and  recovery  of  the  tax  made  valid,   notwithstanding   the
declaration by the court or the direction given for recovery thereof.
(9)   The consistent thread that runs through  all  the  decisions  of  this
Court is that the legislature cannot directly overrule the decision or  make
a direction as not binding  on  it  but  has  power  to  make  the  decision
ineffective by removing  the  base  on  which  the  decision  was  rendered,
consistent with the law of the Constitution and the  legislature  must  have
competence to do the same."

            We are concerned in this case directly with principles 8 and  9.
 On facts, the  judicial  decision  in  Cardoza's  case  has  been  rendered
ineffective by enacting a valid law on a topic within the legislative  field
which  fundamentally  alters  or  changes  the  character   of   legislation
retrospectively.  The changed  or  altered  conditions  are  such  that  the
previous decision would not  have  been  rendered  by  the  court  if  those
conditions had existed at the time of declaring the  law  as  invalid.   The
legislature has not directly over-ruled the decision of any  court  but  has
only rendered, as has  been  stated  above,  such  decision  ineffective  by
removing the basis on which the decision was arrived at.

      Learned counsel for the respondent cited three  decisions  before  us.
Panchi Devi v. State of Rajasthan and others [(2009) 2 SCC 589], para 9  was
cited before us for the  proposition  that  a  delegated  legislation  being
ordinarily prospective in  nature  should  not  be  interpreted  to  give  a
retrospective effect to take away a right or  liability  which  was  created
for the first time.  In the present case, we are concerned with  an  Act  of
the Legislature and not delegated legislation.  No  right  or  liability  is
created for the first time - the only thing done  in  the  present  case  is
that a firm is by fiction of law continued as such for certain  purposes  of
assessment  even  after  its   dissolution.    Equally,   no   question   of
interpretation qua retrospectivity arises.  The legislature in  the  present
case has expressly made the impugned provision retrospective.  On all  these
counts, this judgment is distinguishable and would not apply at all here.

            It was then contended based on Tata  Motors  Ltd.  v.  State  of
Maharashtra and others [(2004)  5  SCC  783]  from  para  12  thereof,  that
withdrawal with retrospective effect of relief properly granted  by  statute
to an  assessee  which  the  assessee  has  lawfully  enjoyed  as  a  vested
statutory right cannot be taken away unless there be strong and  exceptional
circumstances  justifying  the  said  withdrawal.   On  facts  again,   this
judgment does not apply.  There is no withdrawal  of  any  right  which  has
become a vested statutory right which deprives an assessee  of  anything  in
the present case.  As has been noted above, what was taxable  in  the  hands
of a recipient assessee is now taxable in the  hands  of  a  dissolved  firm
post-dissolution only for certain purposes.  This judgment  also  therefore,
cannot have any application in the present factual scenario.

            Lastly, the judgment in Hardev Motor Transport v.  State  of  M.
P. and others [(2006) 8 SCC 613] was cited before us.  Para 31  thereof  was
read out in support of the proposition that by inserting an  explanation  in
a statute, the main provision of the Act cannot  be  defeated  or  enlarged.
Applying this test to the present case, it is clear that in  1997  both  the
main provision, that is Section 26(4), as well  as  explanation  were  added
retrospectively.  The main provision has been expanded to include  dissolved
firms and the explanation creates a legal  fiction  in  furtherance  of  the
main provision by deeming  a  dissolved  firm  to  be  in  existence  as  an
assessee for certain purposes.  This being the  case,  this  judgment  would
also have no application to the present factual scenario.

            For these reasons, we set  aside  the  impugned  judgment  dated
03.07.2002 and allow the appeals.       There  shall  be  no  orders  as  to
costs.

                                  ........................., J.
                                  [ A.K. SIKRI ]



                                  ........................., J.
                                  [ ROHINTON FALI NARIMAN ]

New Delhi;
March 17, 2015.

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