# [1962] 1 S.C.R. 512

- **Citation:** [1962] 1 S.C.R. 512
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Bench:** S. K. Das, J. L. Kapur, M. Hidayatullah, J. c. SHAH, T. L. Venkatarama Aiyar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1962-1-s-c-r-512-2142
- **Pages:** 6

## Headnote

Income Tax-Surcharge-"Federal purposes" and "for the
purposes of the Central Government", Meaning of-Finance Act,
1942 (XII of 1942), s. 8(1)-Government of India Act, 1935 (25
and 26 Geo. V. Ch. 42), ss. IOO, 124(1), I38(1) Proviso (b), 313,
Seventh Schedule item 54, List I, General Clauses Act, I897 (IO of
r897), ss. 3(8ab) (a), r8a.
The petitioners as partners of a registered firm were assessed to income-tax for the relevant assessment years. Thereafter
they made a disclosure of their income nnder a "Voluntary Disclosure Scheme" regarding profits which had escaped assessment, and on reassessment of the disclosed income income-tax,
super-tax and surcharge were levied. The levy of surcharge but
not income-tax and super-tax was challenged as unauth'Orised.
Held, that the power to legislate for levy of tax on income
was conferred upon the Federal Legislature by s. 100 sub-ss.
(1) and (2) of the Government of India Act, 1935, and item 54
of List I of the Seventh Schedule and the Federal Legislature
was competent under that entry to legislate in regard to the levy
of a surcharge on tax; s. 138(1) proviso (b) did not restrict the
amplitude of that legislative power. The term "Federal purposes" in s. 138 is not defined in the Government of India Act
nor in the General Clauses Act; but there is sufficient indication
in the section itself that surcharges were to form part of the
Revenues of the Federation and such Revenues were to be
expended for the purposes therein mentioned. The concept of the
words "purposes of the Central Government" under the General
Clauses Act was not different from what was intended by the
use of the words "Federal purposes" ins. 138(1) proviso (b) of
the Government of India Act.
ORIGINAL JURISDICTION: Petitions Nos. 140 and
177 to 191 of 1959.
Petitions under Article 32 of the Constitution of
India for enforcement of Fundamental Rights.
M. R. M. Abdul Karim and K. R. Choudhury, for
petitioners.
K. N. Rajagopala Sastri and D. Gupta, for respondents.
•
•
•
'
'
•
1 S.C.R. SUPREME COURT REPORTS
513
1961. March 22.
The Judgment of the Court was
delivered by
KAPUR, J.-These are sixteen petitions under Art.
32 of the Constitution challenging the legality of the
imposition of surcharge imposed on the income of the
assessees under the Finance Acts of 1942, 1943, 1944
and 1945.
The assessment relates to four assessment
years 1942-43, 1943-44, 1944-45 and 1945-46.
The petitioners are four partners of a firm named
Mohammedaly Sarafaly & Co., Madras, which was
carrying on business in hardware, stocks, shares, etc.
For the assessment years 1942-43 to 1945-46 this firm
was treated as a registered firm under the Indian
Income-tax Act and therefore the partners were assessed on their respective shares of the profits from the
business of the firm.
All assessments were completed
before 1949 and total income for the purpose of assessment for those four years was about Rs. 29,00,000.
In 1955 the petitioners under a 'Voluntary Disclosure
Scheme' with regard to profits which had escaped
assessment made a disclosure of their income and
proceedings were taken under s. 34 of the Income-tax
Act. In the month of April, 1959, there was a reassessment on all the four partners and the total income for the four assessment years thus came to
about Rs. 35 lakhs which included Rs. 29 lakhs already
assessed. On that income, income-tax, super-tax, and
surcharge were levied. The surcharge, according to
the petition was Rs. 3,82,791. It is this surcharge
which is impugned as being without the authority of
law inasmuch as the then Federal Legislature, it is
submitted, was not competent to levy the surcharge.
Provision for sn rcharge was made under s. 8( 1) of
the Finance Act, 1942 (Act XII of 1942). This section may now be quoted:-
Section 8(1) "Subject to the provisions of sub-sections (2) and (3),-
(a) income-tax for the year beginning on the 1st
day of April, 1942, shall be charged at the rates
specified in Part I of Schedule II increased in t

## Text

March zz.
512
SUPREME COURT REPORTS
ABDULLABHAI M. BHAGAT, ETC.
v.
[1962]
THE INCOME-TAX OEFICER, SPECIAL CIRCLE,
MADRAS
(S. K. DAS, J. L. KAPUR, M. HIDAYATULLAH, J. c.
SHAH and T. L. VENKATARAMA AIYAR, JJ.)
Income Tax-Surcharge-"Federal purposes" and "for the
purposes of the Central Government", Meaning of-Finance Act,
1942 (XII of 1942), s. 8(1)-Government of India Act, 1935 (25
and 26 Geo. V. Ch. 42), ss. IOO, 124(1), I38(1) Proviso (b), 313,
Seventh Schedule item 54, List I, General Clauses Act, I897 (IO of
r897), ss. 3(8ab) (a), r8a.
The petitioners as partners of a registered firm were assessed to income-tax for the relevant assessment years. Thereafter
they made a disclosure of their income nnder a "Voluntary Disclosure Scheme" regarding profits which had escaped assessment, and on reassessment of the disclosed income income-tax,
super-tax and surcharge were levied. The levy of surcharge but
not income-tax and super-tax was challenged as unauth'Orised.
Held, that the power to legislate for levy of tax on income
was conferred upon the Federal Legislature by s. 100 sub-ss.
(1) and (2) of the Government of India Act, 1935, and item 54
of List I of the Seventh Schedule and the Federal Legislature
was competent under that entry to legislate in regard to the levy
of a surcharge on tax; s. 138(1) proviso (b) did not restrict the
amplitude of that legislative power. The term "Federal purposes" in s. 138 is not defined in the Government of India Act
nor in the General Clauses Act; but there is sufficient indication
in the section itself that surcharges were to form part of the
Revenues of the Federation and such Revenues were to be
expended for the purposes therein mentioned. The concept of the
words "purposes of the Central Government" under the General
Clauses Act was not different from what was intended by the
use of the words "Federal purposes" ins. 138(1) proviso (b) of
the Government of India Act.
ORIGINAL JURISDICTION: Petitions Nos. 140 and
177 to 191 of 1959.
Petitions under Article 32 of the Constitution of
India for enforcement of Fundamental Rights.
M. R. M. Abdul Karim and K. R. Choudhury, for
petitioners.
K. N. Rajagopala Sastri and D. Gupta, for respondents.
•
•
•
'
'
•
1 S.C.R. SUPREME COURT REPORTS
513
1961. March 22.
The Judgment of the Court was
delivered by
KAPUR, J.-These are sixteen petitions under Art.
32 of the Constitution challenging the legality of the
imposition of surcharge imposed on the income of the
assessees under the Finance Acts of 1942, 1943, 1944
and 1945.
The assessment relates to four assessment
years 1942-43, 1943-44, 1944-45 and 1945-46.
The petitioners are four partners of a firm named
Mohammedaly Sarafaly & Co., Madras, which was
carrying on business in hardware, stocks, shares, etc.
For the assessment years 1942-43 to 1945-46 this firm
was treated as a registered firm under the Indian
Income-tax Act and therefore the partners were assessed on their respective shares of the profits from the
business of the firm.
All assessments were completed
before 1949 and total income for the purpose of assessment for those four years was about Rs. 29,00,000.
In 1955 the petitioners under a 'Voluntary Disclosure
Scheme' with regard to profits which had escaped
assessment made a disclosure of their income and
proceedings were taken under s. 34 of the Income-tax
Act. In the month of April, 1959, there was a reassessment on all the four partners and the total income for the four assessment years thus came to
about Rs. 35 lakhs which included Rs. 29 lakhs already
assessed. On that income, income-tax, super-tax, and
surcharge were levied. The surcharge, according to
the petition was Rs. 3,82,791. It is this surcharge
which is impugned as being without the authority of
law inasmuch as the then Federal Legislature, it is
submitted, was not competent to levy the surcharge.
Provision for sn rcharge was made under s. 8( 1) of
the Finance Act, 1942 (Act XII of 1942). This section may now be quoted:-
Section 8(1) "Subject to the provisions of sub-sections (2) and (3),-
(a) income-tax for the year beginning on the 1st
day of April, 1942, shall be charged at the rates
specified in Part I of Schedule II increased in the
cases to which sub-paragraph (b) of paragraph A
65
x96x
Abdullabhai
1'.1. Bhagat
v.
The Income-tax
Officer, Special
Circle, Madras
Abdutlabhai
M. Bhagat
v.
The Incotne-tax
Officer, Special
Circle, lvl.adras
Kapur ].
514
SUPREME COURT REPORTS
[1962]
and paragraph B of that part apply with a surcharge for the purposes of the Central Government
at the rate specified therein in respect of each such
rate of income-tax, and
(b) rates of super-tax for the year beginning on
the 1st day of April, 1942, shall, for the purpose
of section 55 of the Indian Income-tax Act, 1922,
be those specified in Part II of Schedule II increased in the cases to which paragraphs A, B and C of
that Part apply by a surcharge for the purposes of
the Central Government at the rate specified therein in respect of each such rate of super-tax."
It was contended that the :Federal Legislature had no
power under the Government of India Act, 1935, (25
and 26 Geo V, Ch. 42), to impose a surcharge "for the
purposes of the Central Government". The legislative power of the Federal Legislature was given in
s. 100 of the Government of India Act, 1935, and
the power to tax income was contained in item 54 of
List I of the Seventh Schedule which was as follows:-
"Taxes on income other than agricultnral income."
Part VII of the Government of India Act, 1935, deals
with Finance, Property and Suits and the first chapter
deals with Finance. The relevant section which has
been relied upon by the petitioners, i.e., s. 138(1) of
that Act, is in that Part which deals with Distribution
of Revenues between the Federation and the Federal
Units. That section reads:-
Section 138(1) "Taxes on income other than agricultural income shall be levied and collected by the
Federation, ................. .
Provided that-
(a) ...... ········ ............................................... .
(b) the Federal Legislature may at any time increase the said taxes by a surcharge for Federal
purposes and the whole proceeds of any such surcharge shall form part of the revenues of the Federation."
It was submitted that according to this section the
power of the :Federal Legislature to impose a surcharge was only for Federal purposes; that bys. 8(1)
of the Finance Act, 1912, and similar provisions in
'
.......
•
•
•
..
1 S.C.R. SUPREME COURT REPORTS
515
the other Finance Acts of three following years, the
surcharge had been levied "for the purposes of the
Central Government" and that the terms "the purposes of the Central Government" and "for Federal
purposes" were not the same but were two different
concepts. Section 311 of the Government of India
Act, 1935, deals with Interpretation but "Federal
purposes" is not defined in that section. In subsection (3) of s. 313 which is in Part XIII, dealing
with Transitional Provisions, it is provided:-
Section 313(3) "References in the provisions of
this Act for the time being in force to the Governor.
General and the Federal Government shall, except
as respects matters with respect to which the Governor-General is required by the said provisions to act
in his discretion be construed as references to the
Governor-General in council, and any reference to
the Federation, except where the reference is to the
establishment of the Federation, shall be construed
as a reference to British India, the Governor-General in Council, or the Governor-General, as the
circumstances and the context may require."
On the basis of this section it was urged that the term
"Federal purposes" ins. 138(l)(b) of the Government
of India Act, 1935, means the purposes of the Federal
Government, i.e., of the Governor-General in Council
or the Governor-General as the case may be and that
in the context it is a term of lesser amplitude than the
term "purposes of the Central Government". "Central
Government" in s. 3(8ab)(a) of the General Clauses
Act, 1897, was defined as follows:-
Section 3 (Sab) "'Central Government' shall-
(a) in relation to anything done or to be done
after the commencement of Part III of the Government of India Act, 1935, mean the Federal Government;".
,
"Federal Government" was defined in the General
Clauses Act in s. 18a as follows:-
Section 18a "'Federal Government' shall-
(a) in relation to anything done or to be done
after the commencement of Part III of the Government of India Act, 1935, but before the establishment of the Federation, mean, as respects matters
Abdullabhai
M. Bhagat
v.
The Income-tax,
Officer, S-pecial
Circle, P,,fadras
Kapur ].
A bdullabhai
M. Bhagat
v.
The Inco1ne-tax
Officer, Special
Circle, Madras
Kapur ].
516
SUPREME COURT REPORTS
[1962]
with respect to which the Governor-General is by
and under the provisions of the said Act for the
time being in force required to act in his discretion,
the
Governor-General, and as respects other
matters, the Governor-General in Council;
and shall include-
(i) in relation to functions entrusted under section 124(1) of the said Act to the Government of a
Province, the Provincial Government acting within
the scope of the authority given to it under that
sub-section; and
(ii) in relation to the administration of a Chief
Commissioner's Province, the Chief Commissioner
acting within the scope of the authority given to
him under section 94(3) of the said Act;".
From these s~ctions it was argued that the term
"Federal Government" in the Government of India
Act, 1935, only meant the Governor-General or the
Governor-General in Council as the case may be but
under the definition in the General Clauses Act the
term "Central Government" did not only denote the
Governor-General or the Governor-General in Council
as the case may be but also included for certain
purposes the Provincial Governments acting within
the scope of the authority given to them under s. 124(1)
of the Government of India Act, 1935. This argument, in our opinion, is wholly fallacious.
The power of th.e Federal Legislature to legislate
was conferred by s. 100, sub-ss. (1) and (2).
The first
sub-section deals with the power of the Federal
Legislature to legislate in regard to items contained in
the First List which was exclusively within the power
of the Federal Legislature. The Federal Legislature
therefore had the power to legislate in regard to any
subject contained in List I and item 54 relating to taxes
on income was in that List. It has been held that
the items have to be given the widest possible amplitude. But it was submitted that the power under
item 54 howsoever wide it may be is subject to the
limitation contained in s. 138(1), proviso (b).
Now
"Federal purposes" is not defined in the Government
of India Act, 1935, nor is it defined in the General
'
'
1 S.C.R. SUPREME COURT REPORTS
517
Clauses Act. But there is sufficient indication in s. 138
itself that the amounts recovered as surcharge were to
form part of the Revenues of the Federation and
such Revenues were to be expended for the purposes
there indicated. Under s. 124(4) of the Government
of India Act, 1935, where powers and duties are conferred by s. 124 upon a Province or a Federated State
there shall be paid by the Federation to the Province
or the Federated State such sum as may be agreed
........................... Hence by the definitions given in
the General Clauses Act no different concept of the
words "purposes of the Central Government" was
intended from what was intended by the use of the
words "Federal purposes" in s. 138(1 )(b) of the Government of India Act, 1935.
These petitions therefore fail and are dismissed with
costs. One hearing fee.
Petitions dismissed.
z96 r
A bdullabhai
M. Bhagat
v.
The Tncome-tax
Officer, Special
Circle, Madras
Kapur J,
M/s. SAINIK MOTORS, JODHPUR AND OTHERS
z96z
v.
THE STATE OF RAJASTHAN
(S. K. DAS, J. L. KAPUR, M. HIDAYA'fULLAH,
J. c. SHAH and T. L. VENKATARAMA AIYAR, JJ.)
Tax-Levied on passengers and goods carried by road in motor
vehicles-Lump sum in lieu of tax optionally payable under the Act
but mandatory undu the Rules,and notification-The word "shall",
if mandatory or directory-Discrimination, if any between.operators
using roads-Rajasthan Passengers and Goods Taxation Act, r959
(I8 of r959), ss. 3, 4-Rajasthan Passengers and Goods Taxation
Rules, r959, rr. 8, 8-A, Notification issued under r. 8-Constitution
of India, Sch. VJ[, State List, Entry 56.
The petitioners who were partners of a registered firm holding public carrier and stage carriage permits challenged the
constitutionality of certain provisions of the Rajasthan Passengers and Goods Taxation Act, 1959. the Rajasthan Passengers and
Goods Taxation Rules, 1959. and a notification issued under r. 8.
The Act was passed for levying a tax on passenghs and goods
lt1ar(;h 22.