# THE COMMISSIONER OF INCOME-TAX v. THE PATIALA CEMENT CO. LTD

- **Citation:** [1957] 1 S.C.R. 1161
- **Court:** Supreme Court of India
- **Decided:** 1954-05-26
- **Case number:** CIVIL APPELLATE No. 118 of 1955
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-commissioner-of-income-tax-v-the-patiala-cement-co-ltd-1326
- **Pages:** 6

## Headnote

• '
S.C.R.
SUPREME COURT REPORTS
1161
THE COMMISSIONER OF INCOME-TAX
v.
THE PATIALA CEMENT CO. LTD.
[BHAGWATI, S. K. DAs and J .. L. KAPUR JJ.l
Income
Tax~Patiala
State
Income-tax
Law-Income-tax
Officer's
Orders-A ppealability-Assessmcnt
years
1948-49
and
1949-50-Applicability of Indian Income-tax Act to Part R StatesPatiala Income-tax Act, 2001 (VIII of 2001), s. 18(3A)(7)-Finance
Act, 1950 (XXV of 1950), s. 13--lndian Income-tax Act, 1922 (XI
of 1922), s. 2(14A).
The respondent was a company incorporated in the former
Patiala State with its registered office in the territory of Pepsu, a
Part B State.· For the assessment years 1948-49 and 1949-50 in
respect of the amounts of income-tax and super-tax which it failed
to deduct from out of the remuneration
paid to its
managing
agents, the Income-tax Officer took action under the provisions of
s. 18 of the Patiala Income-tax Act. The Act did not provide for
an appeal against the orders of the Income-tax Oflic·er under that
section and the question for determination was whether an appeal
lay under the provisions of the Indian Income-tax
Act, 1922,
which was extended to all Part 13 States with effect from April 1,
1950, by s. 13 of the Finance Act, 1950, and s. 2(14A) of the
Indian Income-tax Act, 1922 :
Held, that the result of the extension of the Indian Incometax Act, 1922, to Part B States was that that Act was applicable
to the assessment years 1950-51 and subsequent years and that
for the assessment years 1948-49 and 1949-50 the law applicable
was the Patiala Income-tax Act.
Accordingly, an appeal against
the order of the Income-tax Officer in question was n~t competent.
The Union of India v. Madan G.opal Kabra, (1954) S.C.R. 541
and D. R. Madhavakrishnaiah v. The Income Tax Officer, (1954)
S.C.R. 537, followed.
CIVIL
APPELLATE
No. 118 of 1955.
JURISDICTION :
Civil
Appeal
Appeal from the judgment and order dated May 26,
1954, of the P.E.P.S.U. High Court in Misc.
Case
No. 31 of 1953.
G. N. f oshi and R. H. Dhebar, for the appellant.
The respondent did not appear.
1957. 'May 17. The Judgment of the Court was
.,.
delivered qy
B-81 S. c, India/.'iq
1957
May 17
1957
The Commissioner
of Income-lax
Y.
The Paliala
1162
SUPREME COURT REPORTS
[1957]
KAPUR, J .-This is an appeal under certificate of
the Pepsu High Court and the question for decision
relates to
the
applicability
of
the
Indian Incometax Act, 1922, to the erstwhile Pepsu area in the years
of assessment 1948-49 and 1949-50.
CemenJ Co. Ud.
The assessee company (the respondent before us),
was incorporated in the Patiala State and had its regisKapu, J.
tered office at Surajpur in Pepsu. For the year of
assessment 1948-49 the company failed to deduct from
out of the. remuneration paid to its managing agents,
who were non-residents, the income~tax and the supertax which, it, under the law, was required to do. It
also paid to its auditors auditing fees and from out of
this sum also it did not deduct the income-tax and
super-tax under the provisions of the Patiala Incometax Act. The two sums in dispute were Rs. 59,787-1-0
and Rs. 581-4-0 respectively. For the assessment year
1949-50 also the assessee company failed to make the
deduction from the remuneration paid to its managing
agents
and
the
income-tax
deductible
was
Rs.
52,484-14-0
and
super-tax
Rs.
21,611-6-0.
The
Income-tax
Officer took
action against
the assessee
company under ss. \8(3A) and 18(7) of the Patiala
Income-tax Act and consequently issued two demand
notices for the amounts
above
mentioned.
Against
this order of the Income-tax Officer the assessee company took an appeal to the appellate Assistant Commissioner who reduced the amount demanded but did not
decide the question whether the assessee company was
bound to make the deductions or not. The assessee company then appealed to the Income-tax Appellate Tribunal and it held that under s. 18(7) of the Patiala Incometax- Act no order was required to be passed by the
Income-tax Officer and that po appeal
lay
to
the
A

## Text

• '
S.C.R.
SUPREME COURT REPORTS
1161
THE COMMISSIONER OF INCOME-TAX
v.
THE PATIALA CEMENT CO. LTD.
[BHAGWATI, S. K. DAs and J .. L. KAPUR JJ.l
Income
Tax~Patiala
State
Income-tax
Law-Income-tax
Officer's
Orders-A ppealability-Assessmcnt
years
1948-49
and
1949-50-Applicability of Indian Income-tax Act to Part R StatesPatiala Income-tax Act, 2001 (VIII of 2001), s. 18(3A)(7)-Finance
Act, 1950 (XXV of 1950), s. 13--lndian Income-tax Act, 1922 (XI
of 1922), s. 2(14A).
The respondent was a company incorporated in the former
Patiala State with its registered office in the territory of Pepsu, a
Part B State.· For the assessment years 1948-49 and 1949-50 in
respect of the amounts of income-tax and super-tax which it failed
to deduct from out of the remuneration
paid to its
managing
agents, the Income-tax Officer took action under the provisions of
s. 18 of the Patiala Income-tax Act. The Act did not provide for
an appeal against the orders of the Income-tax Oflic·er under that
section and the question for determination was whether an appeal
lay under the provisions of the Indian Income-tax
Act, 1922,
which was extended to all Part 13 States with effect from April 1,
1950, by s. 13 of the Finance Act, 1950, and s. 2(14A) of the
Indian Income-tax Act, 1922 :
Held, that the result of the extension of the Indian Incometax Act, 1922, to Part B States was that that Act was applicable
to the assessment years 1950-51 and subsequent years and that
for the assessment years 1948-49 and 1949-50 the law applicable
was the Patiala Income-tax Act.
Accordingly, an appeal against
the order of the Income-tax Officer in question was n~t competent.
The Union of India v. Madan G.opal Kabra, (1954) S.C.R. 541
and D. R. Madhavakrishnaiah v. The Income Tax Officer, (1954)
S.C.R. 537, followed.
CIVIL
APPELLATE
No. 118 of 1955.
JURISDICTION :
Civil
Appeal
Appeal from the judgment and order dated May 26,
1954, of the P.E.P.S.U. High Court in Misc.
Case
No. 31 of 1953.
G. N. f oshi and R. H. Dhebar, for the appellant.
The respondent did not appear.
1957. 'May 17. The Judgment of the Court was
.,.
delivered qy
B-81 S. c, India/.'iq
1957
May 17
1957
The Commissioner
of Income-lax
Y.
The Paliala
1162
SUPREME COURT REPORTS
[1957]
KAPUR, J .-This is an appeal under certificate of
the Pepsu High Court and the question for decision
relates to
the
applicability
of
the
Indian Incometax Act, 1922, to the erstwhile Pepsu area in the years
of assessment 1948-49 and 1949-50.
CemenJ Co. Ud.
The assessee company (the respondent before us),
was incorporated in the Patiala State and had its regisKapu, J.
tered office at Surajpur in Pepsu. For the year of
assessment 1948-49 the company failed to deduct from
out of the. remuneration paid to its managing agents,
who were non-residents, the income~tax and the supertax which, it, under the law, was required to do. It
also paid to its auditors auditing fees and from out of
this sum also it did not deduct the income-tax and
super-tax under the provisions of the Patiala Incometax Act. The two sums in dispute were Rs. 59,787-1-0
and Rs. 581-4-0 respectively. For the assessment year
1949-50 also the assessee company failed to make the
deduction from the remuneration paid to its managing
agents
and
the
income-tax
deductible
was
Rs.
52,484-14-0
and
super-tax
Rs.
21,611-6-0.
The
Income-tax
Officer took
action against
the assessee
company under ss. \8(3A) and 18(7) of the Patiala
Income-tax Act and consequently issued two demand
notices for the amounts
above
mentioned.
Against
this order of the Income-tax Officer the assessee company took an appeal to the appellate Assistant Commissioner who reduced the amount demanded but did not
decide the question whether the assessee company was
bound to make the deductions or not. The assessee company then appealed to the Income-tax Appellate Tribunal and it held that under s. 18(7) of the Patiala Incometax- Act no order was required to be passed by the
Income-tax Officer and that po appeal
lay
to
the
Appellate Assistant
Commissioner
against
the order
under s. 18(3A) as there was no provisio!l for it under
the Patiala Income-tax Act.
Before the Tribunal it
was contended that at the time when the appeals were
decided by the Appellate Assistant Commissioner, the
Patiala Income-tax
Act had ceased to be in force
and
therefore the appeals were sustainable under
the provisions of the Indian Income-tax Act which had been
•
S.C.R.
SUPREME COURT REPORTS
1163
extended to all Part B States by s.
13 of the Indian
Finance Act of 1950 (XXV of 1950) but this
contention
was repelled and the Tribunal · held that the only
remedy for the assessee company was to take a revision
under s. 33 of the Patiala Income-tax Act to the Commissioner. The Tribunal at the request of the assessee
company referred the following three questions for the
opinion of the High Court :
· ( 1) Whet.her
the
appeals
before
the Appellate
Assistant Commissioner fell to be decided in accordance
with the provisions of the Patiala Income-tax Act or
the Indian Income-tax Act ?
(2) Whether
the appeals before the Appellate
Tribunal fell to be decided in accordance with the pro-
. visions of the Patiala Income-tax Act or the Indian
Income-tax Act ?
{3) Whether, on the assumption that the assessee ·
company was not bound to deduct tax, its appeals
before the Appellate Assistant Commissioner were competent in law ?
The High Court decided that in regard to the assessment year 1948-49, the law applicable was the Patiala
Income-tax
Act and therefore no appeal lay
to the
Appellate Assistant Commissioner but in regard to the
assessment year 1949-50 the Indian law becarhe applicable and therefore the order of the Income-tax Officer
was appealable. The Revenue have come up in appeal
under a certificate of the High Court and the submission is that to the assessment year 1949-50 also the
Patiala Income-tax Act applied and not the Indian
Income-tax Act and therefore the order of the Incometax Officer was not appealable.
In order to resolve the controversy, reference may
be made to certain provisions of the Indian Incometax Act, 1922, and the Finance Act of 1950. Section
13 of the Finance Act provides :
S. 13 "If immediately before the 1st day of April,
1950, there is in force in any Part B State other than
Jammu and Kashmir or in · Manipura, Tripura or Vindya
Pradesh or in the merged territory of Cooch Behar any
law relating to income tax or super tax or tax on profits
of business, that law shall cease to have effect except
1957
Tht Commissioner
of Income-tax
y,
ThePatiala
Cement Co. Ltd,
Kapur].
1957
The Commissioflff
of lrn:rmu-tax
v.
TMPatiala
Cement Co. Ltd.
Kapur J.
1164
SUPREME COURT REPORTS
[1957]
for the purpose of the levy, assessment and collection of
income-tax and super tax in respect of any period not
included in the previous year for the purpose of assessment under the Indian Income-tax Act, 1922, for the
year ending on the 31st day of March, 1951, or for any
subsequent year or, as the case may be, the levy,
assessment and collection
of tax on profits of business
for
any chargeable
accounting
period
ending on or
before the 31st day of March, 1949;"
Section 13 of the Finance Act of 1950 shows that the
Indian Income-tax Act became applicable to the assessees residing in any
Part B State
as from the assessc
ment years 1950-51 or the accounting year 1949-50.
The provisions of s. 2(14A) of the Indian Income-tax
Act,
1922, show that the Act became applicable to
Part B States as from April 1, 1950.
The relevant
provisions of this section are ;
S. 2(14A) "taxable territories" means-
( d) as respects any period after the 31st day of
March, 1950, and before the 13th day of April, 1950,
the territory of India excluding .the State of Jammu
and Kashmir and the Patiala and East Punjab States
Union.
Provided
that
the
"taxable territories" shall
be
deemed to include-
(b) the whole of the territory of India excluding
the State of Jammu and Kashmir-
(i) ........................... .
(ii) as respects any period after the 31st dav of
March, 1950, for any of the purposes of this Act and
(iii) as respects any period included in the previous year for the purpose of making any assessment of
the year ending on the 31st day of March, 1951, or for
any subsequent year;"
It will be noticed that the language used in s. 2(14A)
proviso (b) (iii) is the same as the language under s. 13
of the Finance Act of 1950. The effect of· the Finance
Act of 1950 is that as regards assessment for the year
ending March 31,
1951, the Indian Income-tax Act
' .
1
S.C.R.
SUPREME COURT REPORTS
1165
would be applicable-accounting year
being the
year
ending March 31, 1950, and for any assessment year
previous to that the Patiala Income-tax Act would be
applicable. The effect of s. 2(14A) proviso (b) (ii) &
(iii) is that taxable territories would comprise the whole
of India excluding the State of Jammu and
Kashmir
as respects any period included in the previous year
for the purpose of making an assessment for the year
ending March 31, 1951, i.e., for the assessment year
1950-51 or the accounting year 1949-50.
The application of the Indian Income-tax Act as a
result of s. 13 of the Finance Act of 1950 was decided
in The Union of India v. Madan Gopal Kabra ( 1 ) which
was a case from Rajasthan where there was no incometax in the previous year but the assessee ·was sought
to be assessed for the year 1950-51 under the Indian
Income-tax Act.
It was held that under sub-cl. (i)
of cl. (b) of the proviso to s. 2(14A) the whole of the
territory of India including Rajasthan
would be deemed "'taxable territory" for
the purpose of s. 4A of the
Indian
Income-tax
Act "as
respects
any
period"
meaning any period before or after March 31, 1950, and
the
assessee
was
therefore
liable
to
income-tax.
Patanjali
Sastri, C.J., who delivered the judgment
of the court said :
"A close reading of that provision
will show
that
it saves the operation of the State law only in respect
of 1948-49 or any earlier period which is the period
not included in the previous year (1949-50) for the
purposes of assessment for the year 1950-51.
In other
words, there remained no State law of income-tax
in
operation, in any Part B State in the year
1949-50."
This passage from the judgment supports the
contention of the appellant that as regards income of the
accounting year 1949-50 or the year of assessment
1950-51 no State law of income-tax was operative in
any Part B State. It appears
that the error which
has crept in the judgment of the High Court has been
due to misreading the year 1949-50 as being assessment
year
.and
not
accounting year. In another case
D. R. Madhavakrishnaiah v. The Income Tax Officer( 2 )
(1) [1954] S. C.R. 541, 552.
(2) [1954] S.C.R. 537·
1957
T!ld Commism""'
of Income-tu
,,,,
Tiu Patiala
Cement Co. Ltd.
Kapur].
1957
The Commissioner
of I nco~~tax
....
ThePatiala
Cement Co. Ltd.
Kapur].
1166
SUPREME COURT REPORTS
[1957]
s. 13 of the
Finance Act of
1950 was similarly
interpreted. Therefore both for
the assessment years
1948-49 and 1949-50 the law applicable would be the
Patiala Income-tax law and not the Indian Income-tax
Act and consequently no appeal against the order of the
Income-tax Officer was competent.
The answers to the questions would be as follows:-
Questions Nos. 1 & 2 : The Patiala
Income-tax
Act
was in operation and no appeals lay.
Question No. 3 :
In the negative.
The appeal is, therefore, allowed but as the respondent company has not appeared and
contested
the
appeal, there will be no order as to costs, ·in this
court. ·
Appeal allowed.
}
.~