The Commissioner of Income-Tax vs The Patiala Cement Co. Ltd

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 118 of 1955

Decision Date: 17 May 1957

Coram: J.L. Kapur, Natwarlal H. Bhagwati, S.K. Das

The case was titled The Commissioner of Income-Tax versus The Patiala Cement Co. Ltd and was decided on 17 May 1957 by the Supreme Court of India. The judgment was authored by Justice J.L. Kapur, who sat on the bench together with Justices Natwarlal H. Bhagwati and S.K. Das. The petitioner was the Commissioner of Income-Tax and the respondent was The Patiala Cement Co. Ltd. The date of the judgment was 17 May 1957 and the bench composition was recorded as Kapur, J.L., Bhagwati, Natwarlal H., and Das, S.K. The citation of the decision is reported as 1957 AIR 692 and 1957 S.C.R. 1161. The matters referred to in the judgment involved the Income-Tax-Patiala State Act, provisions of the Income-Tax Officer’s orders, the question of appealability, and the assessment years 1948-49 and 1949-50. The judgment also considered the applicability of the Indian Income-Tax Act to Part B States, the Patiala Income-Tax Act of 2001 (VIII of 2001) section 18(3A), the Finance Act 1950 (XXV of 1950) section 13, and the Indian Income-Tax Act 1922 (XI of 1922) section 2(14A). The headnote explained that the respondent was a company incorporated in the former Patiala State with its registered office in the territory of PEPSU, which was a Part B State. For the assessment years 1948-49 and 1949-50 the company failed to deduct the income-tax and super-tax that it was required to withhold from the remuneration paid to its managing agents. Accordingly, the Income-Tax Officer proceeded against the company under section 18 of the Patiala Income-Tax Act. Because that Act did not contain a provision for an appeal against the officer’s order, the question arose whether an appeal could be founded on the provisions of the Indian Income-Tax Act 1922, which had been extended to all Part B States by section 13 of the Finance Act 1950 and by section 2(14A) of the Indian Income-Tax Act 1922. The Court held that the extension of the Indian Income-Tax Act 1922 to Part B States meant that the Act applied only to assessment years beginning with 1950-51 and thereafter; for the earlier assessment years 1948-49 and 1949-50 the governing law remained the Patiala Income-Tax Act. Consequently, an appeal against the Income-Tax Officer’s order for those years was not permissible. The Court affirmed the earlier decisions in Union of India v. Madan Gopal Kabra (1954) S.C.R. 541 and D.R. Madhavakyishnaiah v. The Income Tax Officer (1954) S.C.R. 537. The judgment formed part of Civil Appeal No. 118 of 1955, an appeal from the judgment and order dated 26 May 1954 of the PEPSU High Court in Miscellaneous Case No. 31 of 1953. Counsel for the appellant appeared, while the respondent did not appear. The judgment was delivered by Justice Kapur. The appeal arose under a certificate of the PEPSU High Court and concerned the applicability of the Indian Income-Tax Act 1922 to the former PEPSU area for the assessment years 1948-49 and 1949-50. The assessee company, which was the respondent, had been incorporated in Patiala State and maintained its registered office at Surajpur in PEPSU. For the assessment year 1948-49 the company failed to deduct, from the remuneration paid to its managing agents, the income-tax and super-tax that the law required it to withhold.

In the case under consideration, the company had employed managing agents who were non-residents, and under the applicable law it was obliged to deduct both income-tax and super-tax from the remuneration paid to those agents. The company failed to make those deductions. In addition, the company paid audit fees to its auditors but also did not deduct income-tax and super-tax from the amounts paid for those services, contrary to the provisions of the Patiala Income-Tax Act. The amounts that were in dispute comprised Rs 59,787-1-0 and Rs 581-40. For the assessment year 1949-50 the company again failed to deduct tax from the remuneration of its managing agents; the income-tax that should have been deducted was Rs 52,484-14-0 and the super-tax was Rs 21,611-6-0. The Income-Tax Officer therefore proceeded against the company under sections 18(3A) and 18(7) of the Patiala Income-Tax Act and issued two demand notices for the respective sums. The company appealed the officer’s order to the Appellate Assistant Commissioner. The Commissioner reduced the amounts demanded, but he did not resolve the substantive question of whether the company was legally bound to make the deductions. Consequently, the company appealed to the Income-Tax Appellate Tribunal. The Tribunal held that, pursuant to section 18(7) of the Patiala Income-Tax Act, the Income-Tax Officer was not required to pass an order, and that the order made under section 18(3A) was not appealable to the Appellate Assistant Commissioner because the Patiala Act contained no provision for such an appeal. Before the Tribunal, it was argued that at the time the Appellate Assistant Commissioner decided the appeals, the Patiala Income-Tax Act had ceased to be in force, and therefore the appeals should have been pursued under the Indian Income-Tax Act, which had been extended to all Part B States by section 13 of the Indian Finance Act, 1950 (XXV of 1950). The Tribunal rejected that contention and concluded that the only remedy available to the company was to seek a revision under section 33 of the Patiala Income-Tax Act before the Commissioner. At the company’s request, the Tribunal referred three questions to the High Court for clarification: first, whether the appeals before the Appellate Assistant Commissioner were to be decided according to the Patiala Income-Tax Act or the Indian Income-Tax Act; second, whether the appeals before the Appellate Tribunal were to be decided according to the Patiala Income-Tax Act or the Indian Income-Tax Act; and third, assuming that the company was not bound to deduct tax, whether its appeals before the Appellate Assistant Commissioner were legally competent. The High Court answered that for the assessment year 1948-49 the applicable law was the Patiala Income-Tax Act, so the appeal to the Appellate Assistant Commissioner was not permissible. However, for the assessment year 1949-50 Indian law had become applicable, and therefore the order of the Income-Tax Officer was appealable. The revenue side subsequently pursued the matter on appeal under a certificate of the High Court, maintaining its submissions.

The contention put forward was that even for the assessment year 1949-50 the Patiala Income-tax Act, and not the Indian Income-tax Act, governed the matter, so that the order passed by the Income-tax Officer could not be appealed. To resolve this dispute the Court examined certain provisions of the Indian Income-tax Act, 1922, together with the Finance Act of 1950. Section 13 of the Finance Act states that if, immediately before 1 April 1950, any law relating to income tax, super-tax or tax on profits of business was in force in any Part B State (excluding Jammu and Kashmir) or in Manipur, Tripura, Vindhya Pradesh or the merged territory of Cooch Behar, that law would cease to have effect except for the purpose of levying, assessing and collecting income-tax and super-tax for any period not included in the previous year for assessment under the Indian Income-tax Act, 1922, for the year ending on 31 March 1951 or for any subsequent year, or, as the case may be, for levying, assessing and collecting tax on profits of business for any chargeable accounting period ending on or before 31 March 1949. This provision demonstrates that the Indian Income-tax Act became applicable to assessee companies residing in any Part B State from the assessment years 1950-51 or, in terms of accounting periods, from the year ending 31 March 1950. The Court then turned to section 2(14A) of the Indian Income-tax Act, 1922, which indicates that the Act took effect in Part B States as of 1 April 1950. Section 2(14A) defines “taxable territories” to include, as respect of any period after 31 March 1950 and before 13 April 1950, the territory of India excluding the State of Jammu and Kashmir and the Patiala and East Punjab States Union, and further provides that “taxable territories” shall be deemed to include (b) the whole of the territory of India excluding Jammu and Kashmir, (i) …, (ii) as respects any period after 31 March 1950 for any purpose of this Act, and (iii) as respects any period included in the previous year for the purpose of making any assessment for the year ending on 31 March 1951 or for any subsequent year. The language of subsection 2(14A) proviso (b)(iii) mirrors the wording of section 13 of the Finance Act of 1950. Consequently, the effect of the Finance Act of 1950 is that, for assessments concerning the year ending 31 March 1951, the Indian Income-tax Act applies—this corresponds to the accounting year ending 31 March 1950—whereas for any assessment year preceding that, the Patiala Income-tax Act remains applicable. The effect of section 2(14A) proviso (b)(ii) and (iii) is therefore to affirm that the taxable territories for the relevant period include the whole of India, excluding Jammu and Kashmir, and that the Indian Income-tax Act governs assessments for the year ending 31 March 1951 and the accounting year 1949-50, while the Patiala Act continues to apply to earlier years.

The Court explained that, for the purpose of making an assessment for the year ending on 31 March 1951, the term “taxable territories” was to be understood as the whole of India except the State of Jammu and Kashmir, when referring to any period that fell within the previous year. In other words, the Indian Income-tax Act applied to the accounting year 1949-50 and the assessment year 1950-51. The Court referred to the decision in The Union of India v. Madan Gopal Kabra, a case originating from Rajasthan where no income-tax law existed in the previous year but the assessee was sought to be taxed for the year 1950-51 under the Indian Income-tax Act. The Court held that, under sub-clause (1) of clause (b) of the proviso to section 2(14A), the entire territory of India, including Rajasthan, was deemed a “taxable territory” for the purposes of section 4A of the Indian Income-tax Act, meaning any period before or after 31 March 1950. Consequently, the assessee was liable to pay income-tax. Chief Justice Patanjali Sastri, delivering the judgment, observed that a careful reading of the provision showed it preserved the operation of State law only for the year 1948-49 or any earlier period, which was not part of the previous year (1949-50) considered for the assessment of 1950-51. Thus, there was no State-law income-tax in force in any Part B State for the accounting year 1949-50 or the assessment year 1950-51. The Court noted that this reasoning supported the appellant’s contention that no State-law income-tax operated in any Part B State for those years. The Court further observed that the High Court’s error stemmed from misreading 1949-50 as an assessment year rather than an accounting year.

The Court then turned to another authority, D. B. Madhavakri Shnaiah v. The Income-Tax Officer, where section 13 of the Finance Act 1950 was interpreted in the same manner. Accordingly, for the assessment years 1948-49 and 1949-50, the applicable law was the Patiala Income-tax Act, not the Indian Income-tax Act, and therefore no appeal against the Income-Tax Officer’s order was competent. The Court answered the questions posed: for questions 1 and 2, the Patiala Income-tax Act was in operation and no appeals were permissible; for question 3, the answer was negative. The appeal was allowed, but since the respondent company had not appeared to contest the appeal, the Court declined to order costs. The appellate judgment was therefore affirmed. The decision concluded with a reference to an appendix recalling the memory of Shri N. Chandrasekhara Aiyar, former Judge of the Supreme Court of India, as recorded by the Judges and members of the Bar at a meeting on 1 April 1957.

The Chief Justice of India, R. Das, addressed the Solicitor General and the members of the Bar, informing them of the death of Nagapudi Chandrasekhara Aiyar, a respected colleague and dear friend. He said that the sad news had reached him on the evening before. He gave Aiyar’s birth date as 25 January 1888. He described his education at Conjeevaram, Tirupati and Madras, noting that he attended Christian College and Madras Law College. He mentioned that during his college years Aiyar was an enthusiastic sportsman, with a particular interest in cricket, an interest he maintained after becoming a District Judge. After a distinguished academic record, Aiyar was enrolled as a vakil of the Madras High Court in 1910. He began his practice in the chambers of Dr. C. P. Ramaswami Aiyar, whom he described as his master and for whom he held great respect. He developed a substantial practice on the Original Side of the Madras High Court. In July 1927 he was appointed City Civil Judge, and in December of the same year he became District and Sessions Judge. He was elevated to the Bench of the Madras High Court in July 1941 and served as a Judge there until 25 January 1948. The State employed his experience in various capacities, first as a member of the All India Industrial Tribunal dealing with bank disputes, and later as a member of the Indo-Pakistan Boundary Disputes Tribunal. Shortly thereafter he was appointed as a Judge of the Supreme Court, taking the oath of office on 23 September 1950. He retired from the Supreme Court on 24 January 1953 and was then chosen as Chairman of the Delimitation Commission. Near the end of his service in the Supreme Court he suffered a serious illness, from which he recovered thanks to medical treatment and the devoted care of his wife, though the disease left him weakened. Undeterred by his frail health, he travelled across India in the spirit of public service and successfully completed the work of the Commission. When Chief Justice Mukherjea became ill, the President, acting on that advice, called upon Aiyar to assist the Supreme Court as an ad-hoc Judge, a responsibility he accepted cheerfully and discharged efficiently to the satisfaction of all. After this temporary appointment he again undertook, as Chairman, further delimitation work resulting from the re-organisation of the States. The Chief Justice observed that Aiyar possessed a thorough grounding in legal principles, complemented by deep insight into human nature, psychology and practical common sense. He added that on complex legal questions presented before the Court, Aiyar applied a fresh mental approach that often helped resolve the issues. The judgments authored and delivered by Aiyar, which appear in the Law Reports, will stand as testimony to his legal learning and human sympathies.

In describing the late Justice Nagapudi Chandrasekhara Aiyar, the Court observed that his intellectual pursuits extended beyond the practice of law and the confines of the courtroom. He possessed a profound knowledge of both Sanskrit and English literature, and his erudition was reflected in his editorial work on the latest edition of Mayne’s Hindu Law as well as in his authorship of the work titled “Anjaneya,” which he dedicated to his mentor, and of a version of the Valmiki Ramayana. Those who had personal contact with him recalled with pleasure his frequent quotations from ancient scriptures and classical poetry, which added a special delight to their interactions. His addresses at university convocations were noted for being thoughtful and incisive, and his demeanor was characterized by warmth, geniality, and friendliness. Observers commented that his lively cheerfulness and his refreshing sense of humor routinely dispelled any sense of dullness, and that he possessed a natural talent for putting everyone at ease. He was described as an animated conversationalist, full of sparkling humor and convivial camaraderie, whose presence brought a glow and warmth that his close associates would forever miss.

The Court further recorded that his death evoked a deep feeling of loss and sadness among his colleagues. The members of the Bar remembered with gratitude the constant courtesy, consideration, and kindness that he had shown them throughout his career. A collective request was made to convey to his surviving spouse the admiration for the continual care and devoted attention she had provided to him, as well as heartfelt sympathy for her in her time of sorrow. The Court expressed prayers for the peace of his soul.

In a statement made by the Solicitor-General of India, Shri C. K. Daphtary reflected that the news of Justice Aiyar’s passing arrived as an unexpected shock to many. He noted that after a seemingly complete recovery from a serious illness a few years earlier, there had been hope that the jurist would continue his distinguished public service for many more years. When Justice Aiyar joined the Supreme Court Bench, he brought with him a record of service in the High Court and various other public duties, earning the admiration appropriate to one who attains the highest level of the judiciary. Upon his departure, he had also earned respect and confidence through his forthright and robust handling of problems, free from excessive subtlety. In addition, he had garnered affection through his hearty fellowship and kindness, which embraced superiors, juniors, and newcomers alike. The Solicitor-General concluded that by his death, the legal profession had lost a notable personality and the nation a citizen of outstanding quality, one who had laboured faithfully for the State and, had death not taken him, would have continued to render valuable service.

In the address delivered before the judges and members of the Supreme Court Bar Association on 17 October 1957, the Chief Justice, Shri S. R. Das, began by expressing sorrow on behalf of the Bar for the loss of Shri Chandrasekhara Aiyar and joined the Chief Justice in a heartfelt tribute to his memory. He then turned the discussion to the recent death of Justice P. Govinda Menon, a Judge of the Supreme Court of India, whose passing had been reported widely in the newspapers. The Chief Justice recalled that, only a short time earlier, he had spent an afternoon in the company of Justice Menon and had not imagined that death was so near. He provided a concise biographical sketch, noting that Justice Menon was born in September 1896, received his early schooling at Ganpat High School, continued his education at Zamorin’s College in Kozhikode, and later attended Presidency College and the Law College in Madras. He was enrolled as an advocate in September 1920 and practiced before the Madras High Court. In December 1940 he was appointed Crown Prosecutor, and in April 1946 he travelled to Japan as the Indian representative before the International Military Tribunal for the Far East at Tokyo, serving as Chief Indian Prosecutor from April to September 1946. He was elevated to the bench of the Madras High Court in 1947, where he served for just over nine years before being appointed to the Supreme Court in August 1956.

Chief Justice Das highlighted Justice Menon’s distinguished performance in each of his roles – as a practitioner, as Crown Prosecutor, and as a judge – describing his success as remarkable. He praised the suavity of Justice Menon’s manners and his sweet, amiable disposition, which earned him affection from both members of the Bar and his fellow judges. He noted that Justice Menon maintained a wide circle of friends both within and outside the legal profession. As a judge of the Madras High Court, he presided over nearly all divisions, handling a broad range of civil and criminal matters. His experience as Crown Prosecutor gave him valuable insight into human nature and a firm grasp of criminal law principles and jurisprudence. While upholding the dignity and majesty of the law, Justice Menon possessed the courage to temper justice with mercy, refusing to allow technicalities or senseless formalities to obstruct the delivery of justice.

The Chief Justice further observed that Justice Menon dealt with numerous heavy civil appeals and revisions, possessed deep knowledge of Hindu law, especially the Marumakattayam and Aliyasantana branches, and contributed chapters on those subjects to the latest edition of Mayne’s Hindu Law. He was especially helpful to junior members of the Bar, who regularly appeared before him without fear or nervousness, and he was known for his studious habits and interest in literary and cultural subjects. In sum, the Chief Justice portrayed Justice P. Govinda Menon as a learned, courteous, and conscientious jurist whose dedication to his duties persisted even during the week preceding his death, when he continued to work without seeking rest so that court business would not be disrupted for his colleagues and the Bar.

In this case, the Court noted that the late Justice Menon possessed studious habits and showed a keen interest in literary and cultural subjects. When he joined the Supreme Court, he brought with him extensive judicial experience, a deep learning, and a strong sense of justice and fair play. His colleagues who sat beside him in Court recalled that he consistently offered assistance and advice in handling matters that came before the Bench. He was uniformly courteous to members of the Bar as well as to his fellow judges, and he demonstrated conscientious dedication to his work. Although he felt decidedly out of sorts for about a week before his death, he refused to rest so that the Court’s business would not be disrupted and that his colleagues and the members of the Bar engaged in partially heard cases would not be inconvenienced. Even after assurances that arrangements had been made for the continuation of Court work, he continued to worry because he did not feel at ease, and this strain, it was observed, adversely affected his health. Consequently, his colleagues mourned the passing of a sound lawyer, a good judge, a loyal friend, and a diligent worker. They requested that his son, who was at his bedside at the time of death, convey their sincerest condolences to the bereaved family.

Additional Solicitor-General H. N. Sanyal addressed the House of Lords on behalf of the Indian Bar, expressing profound sympathy for the family of Justice Menon and deep sorrow at his sudden demise. He recounted that Justice Menon enrolled as an advocate of the Madras Bar in 1920, rapidly becoming a leading member, and was appointed Crown Prosecutor in Madras in 1940, where he acted with utmost fairness. In 1946 he served in Tokyo on behalf of India, discharging his duties with great ability, and in 1947 he was appointed a judge, quickly gaining popularity and the admiration of the legal profession. He later joined the Supreme Court, where, although his tenure was brief, he left a lasting impression on the Indian Bar through his unfailing courtesy and keen desire to administer justice. Sanyal emphasized that Justice Menon possessed all qualities essential for the highest judicial responsibilities in India, and in a climate of frequent criticism he highlighted that the judge died in the service of his duties, never sparing himself even as illness approached, thereby exemplifying dedication to the sacred cause of justice.

He continued to work despite a serious illness that left him unable to perform his duties for a day, and even when it became physically impossible for him to carry out the heavy responsibilities of his office, he still attended the Court and gave his utmost effort to the sacred purpose of administering justice. On behalf of the Indian Bar, the Vice-President of the Supreme Court Bar Association expressed heartfelt condolence and sympathy to his family, his friends, and to all who were close to him. The representative of the Supreme Court Bar Association then spoke on behalf of its members, stating that the sudden and unexpected death of a great and good Judge constituted a profound loss to the Court, to the State, and to the Nation. The Country, he said, had been deprived by the cruel hand of death of the services of an eminent and upright Judge who had enjoyed a very high reputation while serving on one of the most important High Courts of India and also on this august Tribunal. Members of the legal profession regarded an independent judiciary as a symbol of sovereignty, and they recognised that the Courts of Justice constitute the sole bulwark protecting the freedom of the ordinary citizen. They affirmed their commitment to strict adherence to the rule of law and observed that, at a time when the work of the judiciary was not always fully appreciated, it was comforting to recall men such as Justice Govinda Menon, who sacrificed his health and life in service to law and justice. Those who had the privilege of his friendship were urged to remember with gratitude that he was a man of great stature, unostentatious, gentle, and kind-hearted, and that he had won the affection of all who came into contact with him. The speaker attested to his kindness, sympathy and consideration, both for himself and for many of his colleagues in the Bar. Recalling an earlier experience at a major Bar function in South India, he noted that Justice Menon’s courtesy, sweet temper and amiable disposition had endeared him not only to his fellow judges but also to members of the Bar. He further observed that the Judge had preserved the same reputation after his elevation to this Court. The Law Reports of Madras, he said, bore eloquent testimony to his erudition, his clear mind and his keen sense of justice. Those who had the privilege of appearing before him testified to his grasp of legal principles and to the quiet, courteous attention that he gave to the cases argued before him. His judgments were described not as mere collections of precedents but as thoughtful applications of principles, rendered with clarity and precision.

In the tribute recorded, the Court stated that the greatest honour it could render to the memory of the late Judge was the observation that even the most junior member of the Bar never felt any uneasiness at any time while appearing before him. The Court emphasized that this lack of discomfort on the part of the most junior counsel reflected the profound respect and confidence that the Judge inspired throughout the legal profession, irrespective of rank or experience. Acting on behalf of the members of the Supreme Court Bar, the Court extended sincere condolences to the relatives and other members of the bereaved family, indicating the deep sense of loss felt by the entire Bar. The Court expressed that it collectively mourned the death of the Judge and that it offered its homage together with a tribute of appreciation and affection to the memory of a person it described as both a great Judge and a great gentleman, highlighting his professional excellence and personal virtues. The Court further noted that the homage and tribute were intended to convey admiration for his judicial temperament, erudition, and kindness, qualities that had earned him the affection of colleagues and litigants alike. Finally, the Court concluded its expression of respect by wishing that the soul of the departed may rest in peace, offering a final benediction as a mark of reverence.